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The Progressive Economics Forum

The Green Version of the Tax Shift

Now that Elizabeth May is set to join in the televised election debates, her party’s platform will come under greater scrutiny. There is much to like in it – especially a major investment program in energy efficiency, alternative energy, public transit and so on. Her commitment to seriously dealing with climate change and creating a new economy and new jobs in the process is not in question.

That said, I find the Green Tax Shift part of the program outlined on their web site highly questionable and, indeed, slightly weird.

The Greens support moving on two fronts at once – imposing caps on large industrial emitters, and implementing a carbon tax which would apply to household consumption. At $50/tonne, their carbon tax plan would immediately raise gasoline prices by 12 cents per litre. Harper and Layton should have fun with that one.

Precisely how the revenues from the carbon tax would be recycled is considerably more opaque than under the Dion plan, but some clear commitments are made.

A seemingly large chunk of the proceeeds will be directed to income splitting for working age families for tax purposes, extending the income splitting for seniors introduced by Flaherty. Erin has blogged relentlessly on the regressive nature of such a plan, which shifts income into the hands of the spouse with the lower tax rate and most benefits high income families with a single earner.  The Green Party’s own numbers show an income  tax saving of $4,757 per year for an “upper middle class” family with a single earner making $140,000 per year, and no income tax saving at all for middle class working families with two earners in the same income bracket.  The Greens do promise to eliminate all incoem tax for those making less than $20,000.

I suppose there may be an environmental case to be made for supporting stay at home spouses in high income families, but exactly what it is is unclear to me.

The Green Party further promises cuts in payroll taxes – for EI and CPP – as part of their tax shift plan. They say they will cut employer premiums, but puzzlingly show the savings will be gained by families as well as by employers. Even more mysteriously, they show payroll tax savings for an unemployed worker.
If someone can fathom what is going on here, let me know.

I suppose the EI and CPP could be tweaked so there is a direct carbon tax transfer to maintain benefits, but I don’t see this stated, and both programs are now premised on a symmetry of payroll taxes and program benefits.

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Comment from Stuart Murray
Time: September 11, 2008, 1:11 pm

I think they get bonus points for arguing that we should have both cap-and-trade alongside a carbon tax. That whole either-or debate was starting to sound like an argument about which side we should cut our eggs on.

Comment from Toby Sanger
Time: September 12, 2008, 7:24 am

I also found the Green Party’s green shift plan quite odd. With the income splitting, their tables show that it’s higher income families that benefit the most from their proposals while their tables show that typical middle income families, including rural families would actually lose out on balance.

Most of the tax reduction for those who wouldn’t benefit from income splitting would come from payroll tax changes: cutting the EI rate paid by employers as Andrew mentioned, but also a 33% cut in CPP premiums from 4.95% to 3.3%.

Someone please correct me if I am wrong, but isn’t the CPP jointly administered with the provinces so that changes to the CPP require the consent of at leats 2/3 or the provinces with 2/3 of Canada’s population?

Rates for both the CPP and EI are determined by a rate setting process designed to ensure that they are actuarily sound. Changes to these programs can’t be made unilaterally by the feds. Then there’s the issue of the QPP, which is administered by Quebec.

I suppose that the Greens could get around this by promising to provide a federal rebate on these premiums, but that is not what their carbon tax shifting document says.

On the positive side, they do express support for a Just Transition program for workers displaced by climate change policies, but I haven’t seen much detail about it.

They’ve also taken the initiative to calculate these impacts and publish them, which is positive, and they do have a very extensive set of climate change measures.

Comment from John W. Warnock
Time: September 15, 2008, 9:59 am

What all of the parties have overlooked in the discussion of green taxes is the fact that around one-third of those who file income tax returns do not have enough income to pay income taxes. In my survey of how the green taxes are applied in Europe, I found that they all seem to be very regressive. The Canadian Greens also have this airy fairy policy of the “tax shift”, cutting corporate and income taxes and then supposedly taking in revenues from taxes on polluters. Taxing “bads” as they call it.
In contrast, the Australian Greens, who are a party which is to the left of the Labor Party, calls for a wide range of progressive taxes as well as a variety of green taxes. plus offsets for those on low incomes. At one time they advocated a tax on industrial polluters which would be redistributed to all citizens equally, which they saw as a form of wealth re-distribution.
The cap and trade system has certainly not worked well in Europe. When I was in Great Britain in May there was a national poll on green taxes which found over 70% opposed. Commentators argued that most people know that those in the upper income brackets are not affected by the higher costs of gasoline and heating oil, being advocated by the Labor government.

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