Russell Wangersky. — Telegram file photo
Fresh from the last low-tax myth — that lowering corporate taxes in Canada would lead to radical new investment by businesses in this country — there are now groups calling for the same effort to be made to reduce personal income taxes.
Remember how well lowering corporate taxes went? Companies were expected to invest in new equipment and other aspects of their businesses, and instead, most simply stockpiled the money and laughed all the way to the bank.
Well, if that wasn’t enough, think-tanks like the Fraser Institute are suggesting we double down and do the same thing with personal income tax.
Of course, they have a different view of the corporate tax debacle. Here’s their take:
“High federal and provincial personal income tax rates and the relatively low level of incomes at which they apply are hurting Canada’s economic competitiveness with the United States and other G7 nations, concludes a new study published today by the Fraser Institute, an independent non-partisan Canadian policy think-tank.
“‘Thanks to federal tax reforms in 1990s and the early 2000s, Canada’s business and investment taxes are competitive with its peer countries. But when it comes to combined federal and provincial personal tax rates, Canada falls behind,’ said Sean Speer, Fraser Institute associate director of fiscal studies.”
They class business tax cuts as a “win” — interesting.
But the hunt for “competitiveness” is a bit of a chimera. The argument being made is that higher personal taxes impede a whole bunch of efforts to expand business in this country.
Here’s Speer’s take: “If Canada wants to encourage investment, business development, entrepreneurship and work effort, we need to lower marginal tax rates and increase the income thresholds at which they apply.”
But what exactly is it we’re trying to compete with? Even the Fraser Institute agrees our rates are in the middle of personal tax rates in the G7. Is the battle for the bottom really what we want?
Is the clear-cut ability, for example, of the American federal government — and of many states — to run up unsustainable debt to pass on to our kids really the model we’re seeking to emulate?
Because that’s the other side of the tax cut equation: sure, everyone would probably like to pay less in income taxes.
You often hear people complain that we pay too much in taxes — at the same time, there’s little complaint that we have too many road repairs, that hospital wait times are too short or that our aged do just fine being fed canned goods while in personal care.
Pay more or cut costs
But those are the two options: pay for services, or agree on which services we no longer need. Corporations were delighted with the cuts to their taxes; haven’t heard much of a peep about the business support services they were willing to shed, or about their desire to start paying the full cost of the government regulatory services that help keep them from massive product liability lawsuits, or their desire to completely exempt themselves from any sort of taxpayer-funded bailouts.
There is, of course, the other option — but it has more to do with wilful blindness than it does with any concept of competitiveness.
We can cut back on taxes and drive the deficit up — our federal government right now, a “conservative” government, has the unenviable record of having delivered the highest deficit in Canadian history. (It’s worth considering that the massive number of that deficit would have been completely ameliorated by standing pat on just two things: keeping the corporate tax rate the same and not decreasing the GST. Instead, the government chose tax cuts and bigger debts.)
Driving ourselves further into debt — so that we can expect future generations to both pay the money back somehow and pay the interest on our borrowings — does nothing for the myth of competitiveness.
The Corner Brook paper mill, for example, may be more “competitive” with $110 million of money from taxpayers in this province — it depends on your definition of competitive — but if that money goes straight into the province’s debt, future Newfoundlanders and Labradorians just get to pay more. Competitive now for cost-plus-interest later.
It’s all well and good to campaign for lower taxes; it’s probably particularly attractive if you’re making enough money to pay for some things yourself. But make sure that, at the same time, you inform people that belt-tightening will hit them.
Tell the low-tax story. But tell the whole story.
And here’s a novel idea: how about if everyone, both individuals and corporations, paid their fair share? “You get what you pay for” is a concept most business people understand. Most ordinary citizens understand it as well.
But let’s not talk about cutting more taxes unless the people reaping the benefit also put forward the government services they’re willing to surrender to make up for their drop in taxes.
It might not be “competitive,” but it would be, I don’t know, honest.
Russell Wangersky is The Telegram’s editorial page editor. He can be reached by email at email@example.com.