Raise My Taxes

I was out of town and away from the blogosphere during the recent controversy about TD Bank CEO Ed Clark’s “raise my taxes” comment.

As Terry Corcoran pointed out, CEOs are not actually proposing higher taxes on executive incomes or corporate profits. They are instead proposing to hike the GST, a tax that exempts all income in excess of consumption and all purchases by business.

About a month ago, The Globe and Mail reported the Canadian Council of Chief Executives’ musings about a higher GST. President John Manley said, “You don’t want to increase business taxes . . . If you have to increase taxes, your best tax to look at is a consumption tax.”

So, Canada’s business leaders have not become committed supporters of higher taxes and more public services. They are really proposing that, if more revenue is needed to balance the budget, the government should raise the tax that least affects them.

If the choice is between raising consumption taxes or cutting public services, then progressives obviously should prefer higher consumption taxes. However, I do not think that increasing the GST ought to be our top priority.

As Michael Bliss notes in today’s Globe, “the GST, being a consumption tax, is fairly regressive.” Of course, an enhanced GST credit could compensate the poor. But a higher GST would be rather ineffective at redistributing money from wealthy Canadians and foreign shareholders.

I disagree with Bliss that “spending restraint ought to be the first weapon in deficit fighting.” But I wholeheartedly endorse his main point that discussion of tax increases should not be limited to the GST. We should look at more progressive options, such as personal and corporate income taxes.

UPDATE (February 18): Not surprisingly, corporate Canada does not want a discussion about which taxes to increase. In today’s Globe, Bill Robson tries to put the toothpaste back in the tube.

5 comments

  • When Harper lowered the GST, he opened the door for the provinces to increase PST. If I have understood correctly, Quebec is going to raise its PST by two points over the next months.
    Your points about the GST are very strong. I would like to see consumption taxation rethought as green taxes, and the idea of one “neutral” rate so as not to interfere with efficient market pricing replaced by various rates. For example a four cylinder car is taxed at eight points, and an eight cylinder car at 16 points. Use the price system to force markets to add tax costs where appropriate to capture external costs not included in “market” prices.

  • Of course, if there has to be a tax hike, the executives are going to propose a tax hike that effects them the least.

    We are already teetering on the edge of a regressive tax system in Canada. Let’s not tip the scales any further in that direction. There seems to be a lot of room on the top for another income tax bracket.

  • Whatever the best means of taxation, with more than 1.5 million people looking for work, an unemployment rate of 8.3%, and more than 12% if discouraged workers and underemployment are included, it won’t be time to reduce aggregate demand by increasing taxes or reducing federal government spending for some time yet.

  • A tax on consumption, particularly the GST, is extremely progressive.

    In Canada, most basic food items are exempt, along with clothing and other ‘essential’ needs.

    It’s progressive because we have a rebate for the poorest in the country, whereas the richest cannot normally deduct the GST from their Jaguar and house transactions.

    More importantly, you tax what you want to control. A consumption tax does exactly that: reduce consumption. Our current level of consumption in North America and other industrialized countries is out of control and we need to limit and even reduce what we’re consuming.

    Economists that argue that the only way out of our current mess is to ‘go shopping’ only prove that they have removed themselves so far from reality that they can’t see it for the nose on their faces because the treadmill of shopping is only depreciating our planet at the expense of future generations and forcing us to mortgage our futures in exchange for cheap crap.

    Reducing the GST was a significant mistake and has resulted in a structural deficit with the federal finances. It will result in massive cuts from Flaherty and the other Harris-wannabes and, with any luck, will finally result in the Cons getting turfed so that we turn our ship around to better fortunes.

  • Liam: Not all spending is shopping for useless stuff. There is lots of space for the federal government to spend on environmentally useful things like more public transit, high speed intercity trains, bike paths, incentives to consume less energy and pollute less, etc, etc.

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