Marc hears a squeal from the National Post
One of my colleagues likes to say, “if you throw a rock in a barn and hear a squeal, you know you’ve hit a pig.” So it goes with a National Post column attacking my tax incidence paper. I guess my study caught their attention, though I feel like I really deserved a rebuttal from a first-line player like His Majesty Terence Corcoran (who attacked my colleague Hugh Mackenzie for his gas gouging report back in the Spring). Instead, the job got outsourced to a journeyman, Peter Shawn Taylor.
I’m open to all and any criticisms of my study. I think I made defensible choices around the methodology and am happy to debate the finer points. The thing is, from the column it is hard to tell whether Taylor gave the paper more than a glance, as he uses it mostly as a launching pad to attack the CCPA. Overall, I’m highly unimpressed at the lack of sophistication in his rebuttal. Here is what passes for critique:
Lee claims our tax system has become far more regressive since 1990. He finds that lower income brackets now pay an equal or higher percentage of their income in taxes as rich folk do. Lee lumps all forms of income, including inheritances and corporate earnings, into his pot and refers repeatedly to the lack of “fairness” in our system. But this ignores the fact that across the board, rich and poor, Canadians are doing better now than they ever have. Calls for more taxes on rich Canadians, inheritances or corporate profits are not arguments aimed at helping the less-fortunate or improving efficiency, but exercises in envy.
I guess I would suggest to Taylor that he needs to take a walk around town, then brush up on his research before claiming that “poor Canadians are doing better than they ever have.” After good economic times for about a decade (with a minor bump around 2001), the amount of abject poverty in Canada’s major cities remains epic. This was not the case when I was growing up. (See this post for more on the Richards study by CD Howe that “informs” Taylor’s view.)
In any event, my study was not about poverty, it was about who pays the taxes and how that has changed between 1990 and 2005. Taylor then goes on to misrepresent my findings. He quotes:
The CCPA’s ultimate goal is to “to raise Canadian tax revenues from one-third of GDP to one-half.”
This is taking what I said out of context. Here is the full quote:
In contrast to the largely theoretical and occasionally dubious arguments about tax mix and economic performance, the real-world experience of the Nordic countries is illustrative. They show that it is possible to have much higher overall levels of taxation in order to pay for more expansive public programs and greater social cohesion (lower poverty and inequality). The big question is whether we, as a society, want to go there. Economics is not the obstacle, but political challenges and moral objections are bigger barriers.
Notwithstanding the potential for raising top income tax rates, in order to raise Canadian tax revenues from one-third of GDP to Swedenâ€™s one-half, a large portion of this increase would likely need to come from consumption taxes. The challenge would be to ensure that revenues are spent in a highly progressive manner, so that any regressive taxation impacts are more than offset. This is more consistent with the message of the tax mix literature than the simplistic notion that income taxes should be replaced by consumption taxes (with rather large inequality impacts as the pattern of spending would remain unchanged). Claims that Canada relies too much on personal income taxes do not really hold up when we add the Nordics to the comparison.
Taylor then says I “lack conviction” for not supporting the Harper GST cuts. Given the choice between stylized income tax cuts and GST cuts, I would probably pick the latter. But that’s not the real choice. The poorest would be much better off it the proceeds of the GST were spent in a progressive manner on public transit, early learning programs, pharmacare, and so forth â€“ as I allude to in the quote above.
In Taylor’s eyes, I am on a crusade that is “utterly ideological and wholly uninterested in the real world” but in the end, Taylor reveals his true colours as an ideologue of discredited voodoo economics, with a remark that: “[t]ax revenues are up because tax rates are down.”