Saturday, December 03, 2005

The GST Rollback - Consumption vs Income Taxes

I've got a degree in Economics up on my wall so I supose that makes me "an economist" and according to the Liberal Party my opinion is decisive on how taxes should be cut. Thus I supose the time is right for me to now return from the blogging wilderness to chime in with my much vaunted opinion on the matter. (Quickly thereafter returning to being swamped by law school) I'll personally defer to the Milton Friedman who said "I'm in favour of cutting any tax, any time, for any reason whatsoever."

Although, that's probably Milt taking his own position to the extreme. Their is something to be said for the efficiency of consumption taxes as opposed to income taxes. I think its terribly misleading to say they're the preference of all economists. Ironically they're the preference of all free-market economists whom Liberals routinely ignore. You see most left leaning economists labeling it a "regressive" tax that "disportionately" affects the "less priveleged". Its a flat rather than progressive tax. This is why in the past both the Liberals and the NDP have proposed scrapping it. And really any reduction of a flat tax will have the greatest proportional effect at the bottom, and the larged dollar figure directed towards the top. This is always going to be the case as people don't have the same amount of money to begin with, no matter how many NDP supporters secretly pine away for an egalitarian society.

The Liberal talking point about the GST reduction affection those who spend more recieving more money in return is true. But then again this is true with any across the board tax reduction. Tax cuts return money that people already had, as opposed to increasing their prexisting store of wealth.

However, a two percent reduction in the taxes applied to your consumption will affect those who
consume a higher proportion of their income as opposed to "saving it". The rate at which people save increases with their income. Hence the less income you have, the more this tax will impact you. Furthermore, everyone consumes - not everyone pays income tax. If you want to make an argument that not everyone consumes, I supose your pitching your tax plan to a hermit. I find it dubius that they're a constituency whose vote you can really get out to begin with.

I'd be rather skeptical anytime the Liberals suddenly embrace the same economists that they
spurn on any other public policy issue. Although its ironic that perhaps the debate has been framed with the Tories taking up the leftist/social justic tax cut and the Liberals with the libertarian cut. Although arguably the entire debate falls right of center as the true lefties wouldn't cut any taxes at all.

Whether cutting the GST or Income Tax is preferably really depends on what your trying to achieve. If your attempting to increase investment, savings, and productivity - it would be more effective to lower income taxes. On the other hand if your goal is simply to remove excess tax, and return it in the most just manner knocking back the GST is as if not more effective in doing that.

From a purely moral perspective there really is a certain disingenius tone to having the Liberals lead by a silver spoon shipping magnet claiming that a Conservative tax cut is going to result what Scott Reid suggested were "the Conservatives upper class constituency who were going to spend it on luxury automobiles" or something to that effect. Perhaps that's how Paul 'Plutocrat" Martin would spend his GST reduction, on the other hand I think I and most other Canadians are likely to see the price of gas, their phone bill, their internet bill, and their cable bill drop a few bucks every month with the GST reduced as opposed to rushing out and buying a Porsche because of the 2% saving.

Its too bad that when a chance for a real debate emerges, you often find that it just as swiftly decends to ridiculous metaphors and hyperbole. That said the prospect of a Conservative victory warms the cockles of my soul, and I smile a little more at the thought of Paul Martin and Scott Reid no longer annoying me with their presence on national television. Hope springs eternal.


At 12:57 p.m., Anonymous jmrsudbury said...

Not everyone has the same amount of money. Interesting that you said that. Why? Because everyone says that. Again, why do I find that interesting? Many people are all for equality. Cutting the GST will help level the playing field as those living pay cheque to pay cheque, like many middle class folks and under. I find it odd that the liberals, and ndp, want everyone to be treated equally yet they are against cutting the GST, The liberals want all people to be sheep who get our kids raised by the state while we all wait for our health care from the universal system even though Martin gets his from Medisys. The liberals want us to be all the same. But as you point out, not everyone is the same. We don't have the same amount of money. Nor do we have the same needs as the BC government found out during the latest teachers strike over special needs classes. Similarly, larger families have different needs than bachelors. While I like the cut to the GST, your post has gotten me onto a bit of a tangent. Why should we all be considered equal when we clearly are not.

Then again, take two families that both have two kids in daycare and all 4 adults work each making 40,000 a year. The family that has their kid in a non-profit accredited daycare will pay less in taxes each year than the family that uses a for profit daycare under the liberal scheme. Currently if both families are making 80,000, but one has a stay at home parent, then that family pays $5000 more in taxes. So much for equality. Perhaps this is just another case where the liberals want something only when it benefits them.

John Reynolds


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