Surpluses. Then what?
The Globe and Mail ran an editorial last Friday (now subscriber only content)Â Their summary reads:Â “We have grown used to the notion that our governments can run up budget surpluses. If only they could show some vision for putting the money to work.Statistics Canada reported yesterday that all levels of Canadian government posted a combined surplus of $29-billion in the fiscal year that ended March 31, 2007. That matches a 20-year high set in fiscal 2001.”
The Globe argued that strong income tax revenue growth is driving the surpluses, especially at the federal level, indicating that people are over-taxed, and they concluded by calling for tax cuts.
I sent in the following Letter to the Editor which was not published (nothwithstanding the compelling logic of the argument, he adds modestly.)
“Your editorial “Surpluses. Then What?” (June 14) argues that our governments are collecting more revenues than they need, and should cut income taxes.
As noted, income tax revenues have soared in recent years. You fail to ask why this has been the case in a period when effective income tax rates have been falling rather than rising.
The explanation is that income growth has been concentrated at the very high end of the income spectrum. In fact, the one in every two hundred taxpayers who make more than $250,000 per yearÂ now collect 10% of all taxable income, up considerably from 2000.
Effectively, most of the income growth in Canada is being taxed at well above average rates because it is being earned and declared by people in the top tax bracket.
Ordinary taxpayers – whose real wages are more or less unchanged – are not paying more income tax. Instead, our still progressive income tax system is doing what it is supposed to do – generating resources from the affluent to fund programs for all citizens.
Income tax cuts would further boost the incomes of the small minority who are already collecting a hugely disporoportionate share of pre tax income. Well-designed spending programs would benefit all of us.”