The level of taxes not the issue: it’s what
we are willing to pay for services
CALGARY, AB, May 3, 2011/ Troy Media/ – I want to add a postscript to my Which party should win the Canadian election, and why column, which may have given the false impression that I share the neo-conservative anti-deficit frenzy.
In saying the NDP recognizes that “in the future, we’ll have to pay as we go,” I was right overall, but for space reasons, failed to explain the time scale.
An unrepentant Keynesian
I’m an unrepentant Keynesian and totally agree with his two-sided macro-economic coin. During recessions, governments should eschew the terrible mistakes they made in the Great Depression of cutting expenditures as revenues declined. Instead, the correct prescription is deficit financing to “prime the pump” and blunt unemployment and poverty with stimulus spending. Accordingly, in 2009 the Liberals and New Democrats forced a reluctant Harper government to enact such a plan (although Harper, unaccountably, then claimed it as his own).
However, during good times, the opposite is true. Governments should then run surpluses such that, at the end of one or two business cycles, the total deficit and surplus cancel each other out.
To do otherwise and run structural, continual deficits is to force our grandchildren to pay for our excesses. This unsustainable approach would be a sad commentary on our ethics. As well, it would be unethical for governments to deliberately stoke inflation in order to pay off their debt with cheap dollars. This would hurt workers with low bargaining power and those on fixed incomes.
To oppose all deficits, regardless of the circumstances, is equally misguided.
These ideas form only part of my “economics as if people mattered” mantra. In a short note like this, however, I can merely introduce some others:
1. We badly need an adult conversation about taxes. Many seem to accept the nonsensical claim that “there is no good tax” and I sympathize with politicians during the election campaign who avoided discussing the need to increase government revenues. Those who claim we can do this by lowering taxes should be put to the proof – so far, they have been completely unconvincing.
To me, however, raising or lowering taxes is not the fundamental issue.
First we need a careful, ongoing discussion about what level of services and social safety net (income support, health care, etc.) Canadians want and only then ask how we can pay for it. (Of course we must acknowledge that resources are finite and that our long wish list will have to be prioritized, then implemented only if and when revenues permit.)
Optimizing tax collection implies a root and branch reform of Canada’s tax structure. Simplify, remove distortions and unnecessary tax incentives, and use progressive income tax rates, not a regressive flat tax. Reconsider the GST rate and the relative fairness of various taxes. Consider taxing behaviour we wish to reduce (e. g., pollution and carbon taxes).
It is childish to complain about poor programs and yet oppose paying enough taxes to improve them.
Politicians who pretend that eliminating waste will make up the shortfall are either ignorant or economical with the truth.
2. Due to neo-conservative ideology, the world has seen a huge increase in the gap between rich and poor. Tony Judt’s brilliant Ill Fares the Land documents, among other things, the pernicious effect of rule by, of and for the rich.
Income distribution needs determined, careful reform, including the introduction of a negative income tax (Guaranteed Annual Income).
Present disparities are an obscene rebuke to society.
3. Conservative economics appears to rest on two questionable beliefs:
a) that if we dare to tax the rich more, the wealthy, as the main creators of prosperity, will go on strike and withdraw from business. Therefore, the falling tide will lower all boats.
But this world view, which rests on the cynical belief that only greed and the desire for material luxury drive creative entrepreneurs, is misguided. What of the intrinsic joy in creation and the desire to help humankind? Furthermore, many enlightened business people realize that tolerating poverty and grotesque disparity of incomes are not only unethical, but bad business.
b) that creating wealth by indulging the greedy will benefit the poor through the “trickle-down” theory.
A rising tide leaves the leaky ones to sink
Mainstream economists have shown that there is little empirical evidence to support this claim. Apparently a rising tide raises the biggest and fanciest boats, but leaves the little leaky ones to sink.
One reason why these ideas don’t get much exposure is that our much-vaunted “freedom of the press” (news media) mainly benefits those who own them. In contrast to neo-conservatives who dominate opinion channels, citizens wishing to present controversial opinions rarely gain access, not because their arguments are necessarily weak, but because they make defenders of the established order, including advertisers, feel uncomfortable, even threatened.
Hopefully, the democratizing affect of the web will change this and the marketplace of ideas (like the ancient Greek agora) may again flourish.
Phil Elder is Emeritus Professor of Environmental and Planning Law with the Faculty of Environmental Design at the University of Calgary.
