I don’t like to step too far out of my comfort zone in terms of subject matter expertise. This historian in the Globe & Mail today I think steps outside his area of expertise. He is making the case for raising taxes in Canada. He says:
It seems to be conventional wisdom among tax experts and taxation enthusiasts that at least a 40-per-cent increase in the GST, back to 7 per cent, would generate the revenue to fight deficits and maintain social spending. It’s seldom mentioned in these circles that the GST, being a consumption tax, is fairly regressive. Despite a few compensatory loopholes, the GST affects most people about equally. The poor pay a much greater portion of their income in sales taxes than the rich. Sales taxes also act as a break on consumption – which is why, in slow economic times, they are often cut to try to stimulate spending. It’s almost certain that, if the Harper government had not cut the GST before the current recession, all our experts would have called on it to do so as a stimulus measure.
It is true that broadly applied the GST or HST can have a particularly negative impact on the poor but the government has set up a fairly good mechanism to deal with this. Almost 9 million people reported getting a GST/HST rebate cheque in 2009 and the total amount of money rebated was over $3.6 billion. My point is that we need to protect lower income Canadians from the regressive nature of a consumption tax but to disqualify the consumption tax is a big mistake in my opinion.
His second point is that consumption taxes act on a break on consumption. Exactly. That is what they should do. We consume far too much in this country and although I don’t like the shock of recession I would like to see us collectively over time reduce our consumption dramatically. This may be my inner environmentalist coming out but I think we consume way too much as a society. People talk about the Chinese elevating their consumption to the level of the West. I say we should move in the opposite direction.
I have given this some serious thought over the years. Governments need tax revenue and they have a number of ways to get it:
Personal income tax – taxing this too much can be a disincentive to hard work and innovation and forces people to find ways to avoid paying tax. Remember when former Premier Lord cut the small biz tax rate to the bone – several thousand people incorporated as small businesses – to shift their income from personal income to small business income to take advantage of this. I think personal income tax rates should be competitive.
Corporate income tax – I have said and maintain that corporate income tax rates should not be a disincentive to investing here. They should be competitive with other jursidictions but there is no real reason to cut them to the bone or elevate them very high. In Canada, across Canada, governments get less revenue from companies that most OECD countries. That’s just the way it is. The Americans have been clamouring to get their federal rates cut to the level of Canada.
Sales/consumption tax – Again, I favour this one for a wide variety of reasons.
Then there are a whole variety of other smaller government income sources such as property tax, gas tax (this is larger than you might think), royalties on natural resources, etc.
Of all these the one I favour is consumption tax. If we are worried about it being regressive than make it so people earning below some point pay nothing. We do that with income tax now – and we essentially do that with the GST/HST through the rebate programs.