Guest blogger: Canadian indirect taxes
We welcome this article from Raymond Favreau in Montreal:
Canadian indirect taxes and user fees
A progressive tax on income is undoubtedly one of the better ways to redistribute wealth equitably. Its basic principle is the more you earn, the more you proportionally should pay in taxes. This, obviously, doesn’t prevent the rich from staying rich. Unfortunately, in the last thirty years, the establishment has decided, without public debate, to change the fiscal structure by emphasizing consumption (sales) taxes and increasing user fees, which do not take ability to pay into account. This transformation of the fiscal regime is unfair, as it means that the poor and the middle class pay more, and the very rich, much less than their proportionate share.
When the firebrands of neo-liberalism complain about «taxes», which they allege are higher in Canada than elsewhere in the G7 , they rarely distinguish between progressive and regressive taxes – goods and services taxes (GST), that is, the Canadian equivalent of value added taxes. Income taxes are still somewhat progressive, being imposed, at ascending rates, on three increasing brackets. By contrast, GST hits every individual at the same rate, regardless of income. So that the homeless pay the same GST on any given item as millionaires and billionaires. In fact the latter often avoid paying GST on major purchases by having their company make the purchase and get a tax rebate.
Let us add that user fees, charged by governments and public bodies, are also regressive. These rates are increasingly numerous and increasingly high. These are, for example, Quebec Hydro electricity rates, school fees, public transportation, mail and registered mail stamp duties, custom tariffs, nursery fees, medical fees not covered by medicare, auto insurance premiums, etc. Early in December 2008, we learned that Quebec Hydro wants to raise its rates once again. Since 2004 these rates have risen 19.4%.
Soft-Pedaling Tax Cuts?
Since Canadian banks and other institutional investors, following Wall Street’s example, have indicated their intent to be reimbursed by the Canadian federal government for losses they have suffered because of bad investments in subprime-related derivative products, the spokesmen for the business community are soft-pedaling their demands for tax cuts, as it is obvious that taxpayers will have to pay for these gifts to the banks.
But while our right-wing think tanks and their followers generally temper their demands of income tax reductions, politicians, columnists, business journalists, and house economists, unconsciously or by willful ignorance, promote the increase of regressive taxes and user fees. Some examples : the Montmarquette Report, commissioned by the Quebec provincial government, which claims we are immersed in a culture of free services; Pauline Marois, the leader of the Parti Québécois opposition party, who finds «interesting» the idea of increasing the local GST; and the president of the Quebec Association of Young Doctors, François-Pierre Gladu, who proposes increasing the GST and user fees in order to finance the accelerated reimbursement of the Quebec public debt, even though its size is near the G7 average with respect to its ratio to GDP.
In 2007 the economists Jean-Louis Garon and Alain Therrien expressed their admiration of former prime minister, Brian Mulroney, for having had the “courage” to impose the GST on Canadians, without prior public debate. In December 2008 the government of New Brunswick has proposed the replacement of progressive income tax brackets by a single flat tax– and to compensate for the resulting shortfall by raising the GST by 2%. Even the editors of the conservative Globe & Mail found this a rather untimely idea in the context of the current financial crash.
Not to be outdone, our federal finance minister has now revived the notion of income tax reductions in order to stimulate the economy, despite the various studies on the subject which have shown no correlation between tax cuts and economic activity or job-creation.
Since the 1980s the federal and provincial governments have gradually reduced the progressiveness of income taxes. According to a study of the UQAM Chair of Socio-Economic Studies, while a taxpayer declaring an annual taxable income of $100,000 used to pay an income tax 30% higher than someone making $50,000, this difference between the two has diminished to 9% when one takes the aggregated tax into account. It must be noted that starting with an annual income of $50,000 and up, the progressiveness of the Quebec fiscal regime disappears” . This progressiveness is reduced even more due to increased user fees decreed by succeeding provincial governments, which penalize the poorest
The logic, so-called, of the creed which underlies the argument in favour of regressive taxes and user fees, is that the major part of tax revenues should not be borne by those who invest and create wealth and employment. Unfortunately since the mid-80s, both the wealthy and major enterprises invest very little in the industrial sector of the economy, and use the money not paid as taxes to acquire existing enterprises, to speculate on foreign exchange and interest rates, when they don’t simply ship financial assets to offshore tax havens. Another reason the business sector induces governments to multiply and increase user fees is to discredit the public sector in order to facilitate privatization of public services and to transform them into profit centres.
When, in recent years, the federal government slightly reduced the FST rate, even though this reduction was carried out by the ultra-conservative Harper government, many editors and columnists could not abstain from querying the “efficacy” of such cuts, invoking mainstream economists. As if reference to such authorities were sufficient, without considering that economists employed by banks or Bay Street are not necessarily qualified to evaluate questions of social justice or of distribution of wealth.
Adam Smith Overlooked
Neoliberals, who favour regressive taxes, often invoke Adam Smith to support their free trade and free market theses. They are silent, however, on what he wrote on taxes and how they should be paid: “The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to the revenue which they respectively enjoy, under the protection of the state…In the observation or neglect of this maxim consists, what is called the equality or inequality of taxation.” This maxim was established in 1789 by article 13 of the Declaration of Human Rights, adopted after the French Revolution. Its principle subsists today under the heading of vertical fiscal justice, which means that the taxes to be paid must take into account each taxpayer’s level in the scale of incomes.
The last thirty years have seen the very wealthy, mostly from the finance sector, enrich themselves at the expense of society in general, through a series of speculative bubbles leading to the bursting of the last bubble, based on subprime mortgages. In this context, it is deplorable to see the right wing think tanks persist in their endeavours to make the poor and what remains of the middle class, whose incomes have stagnated since the 1980s, assume the major burden of contributing to the maintenance of infrastructures and public services. According to Statistics Canada, the average annual income in 1985 in Canada was $30,000. In 2008 constant dollars, it is $30,033.
If, on the one hand Montmarquette and others continue to favour regressive taxes despite rising inequality, then on the other hand, the financial tsunami, which hit the G20 in August 2007, incited the British Prime Minister, Gordon Brown, to include in his stimulus package, a decrease of 2.5% in the VAT. Will this measure spread to countries affected by the recession? One hopes so, although the New Brunswick proposal of a flat tax on income is not encouraging. But there are Canadian observers who advocate GST reductions as part of a coherent financial stimulus program. Finally a genuine fiscal and social reform would eliminate regressive taxes, and would put an end to both, the multiplication of, and increase in, user fees, and other regressive impositions. To compensate, a truly progressive income tax regime should be reestablished, with more brackets, and rising rates applied to the wealthy and large corporations, along with the elimination of tax havens and fiscal paradises. As well, loopholes should be closed, and bailouts of banks should be curtailed and/or subject to strict conditions and regulatory measures
Raymond FAVREAU, Montreal, Canada
Canadian indirect taxes and user fees
A progressive tax on income is undoubtedly one of the better ways to redistribute wealth equitably. Its basic principle is the more you earn, the more you proportionally should pay in taxes. This, obviously, doesn’t prevent the rich from staying rich. Unfortunately, in the last thirty years, the establishment has decided, without public debate, to change the fiscal structure by emphasizing consumption (sales) taxes and increasing user fees, which do not take ability to pay into account. This transformation of the fiscal regime is unfair, as it means that the poor and the middle class pay more, and the very rich, much less than their proportionate share.
When the firebrands of neo-liberalism complain about «taxes», which they allege are higher in Canada than elsewhere in the G7 , they rarely distinguish between progressive and regressive taxes – goods and services taxes (GST), that is, the Canadian equivalent of value added taxes. Income taxes are still somewhat progressive, being imposed, at ascending rates, on three increasing brackets. By contrast, GST hits every individual at the same rate, regardless of income. So that the homeless pay the same GST on any given item as millionaires and billionaires. In fact the latter often avoid paying GST on major purchases by having their company make the purchase and get a tax rebate.
Let us add that user fees, charged by governments and public bodies, are also regressive. These rates are increasingly numerous and increasingly high. These are, for example, Quebec Hydro electricity rates, school fees, public transportation, mail and registered mail stamp duties, custom tariffs, nursery fees, medical fees not covered by medicare, auto insurance premiums, etc. Early in December 2008, we learned that Quebec Hydro wants to raise its rates once again. Since 2004 these rates have risen 19.4%.
Soft-Pedaling Tax Cuts?
Since Canadian banks and other institutional investors, following Wall Street’s example, have indicated their intent to be reimbursed by the Canadian federal government for losses they have suffered because of bad investments in subprime-related derivative products, the spokesmen for the business community are soft-pedaling their demands for tax cuts, as it is obvious that taxpayers will have to pay for these gifts to the banks.
But while our right-wing think tanks and their followers generally temper their demands of income tax reductions, politicians, columnists, business journalists, and house economists, unconsciously or by willful ignorance, promote the increase of regressive taxes and user fees. Some examples : the Montmarquette Report, commissioned by the Quebec provincial government, which claims we are immersed in a culture of free services; Pauline Marois, the leader of the Parti Québécois opposition party, who finds «interesting» the idea of increasing the local GST; and the president of the Quebec Association of Young Doctors, François-Pierre Gladu, who proposes increasing the GST and user fees in order to finance the accelerated reimbursement of the Quebec public debt, even though its size is near the G7 average with respect to its ratio to GDP.
In 2007 the economists Jean-Louis Garon and Alain Therrien expressed their admiration of former prime minister, Brian Mulroney, for having had the “courage” to impose the GST on Canadians, without prior public debate. In December 2008 the government of New Brunswick has proposed the replacement of progressive income tax brackets by a single flat tax– and to compensate for the resulting shortfall by raising the GST by 2%. Even the editors of the conservative Globe & Mail found this a rather untimely idea in the context of the current financial crash.
Not to be outdone, our federal finance minister has now revived the notion of income tax reductions in order to stimulate the economy, despite the various studies on the subject which have shown no correlation between tax cuts and economic activity or job-creation.
Since the 1980s the federal and provincial governments have gradually reduced the progressiveness of income taxes. According to a study of the UQAM Chair of Socio-Economic Studies, while a taxpayer declaring an annual taxable income of $100,000 used to pay an income tax 30% higher than someone making $50,000, this difference between the two has diminished to 9% when one takes the aggregated tax into account. It must be noted that starting with an annual income of $50,000 and up, the progressiveness of the Quebec fiscal regime disappears” . This progressiveness is reduced even more due to increased user fees decreed by succeeding provincial governments, which penalize the poorest
The logic, so-called, of the creed which underlies the argument in favour of regressive taxes and user fees, is that the major part of tax revenues should not be borne by those who invest and create wealth and employment. Unfortunately since the mid-80s, both the wealthy and major enterprises invest very little in the industrial sector of the economy, and use the money not paid as taxes to acquire existing enterprises, to speculate on foreign exchange and interest rates, when they don’t simply ship financial assets to offshore tax havens. Another reason the business sector induces governments to multiply and increase user fees is to discredit the public sector in order to facilitate privatization of public services and to transform them into profit centres.
When, in recent years, the federal government slightly reduced the FST rate, even though this reduction was carried out by the ultra-conservative Harper government, many editors and columnists could not abstain from querying the “efficacy” of such cuts, invoking mainstream economists. As if reference to such authorities were sufficient, without considering that economists employed by banks or Bay Street are not necessarily qualified to evaluate questions of social justice or of distribution of wealth.
Adam Smith Overlooked
Neoliberals, who favour regressive taxes, often invoke Adam Smith to support their free trade and free market theses. They are silent, however, on what he wrote on taxes and how they should be paid: “The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to the revenue which they respectively enjoy, under the protection of the state…In the observation or neglect of this maxim consists, what is called the equality or inequality of taxation.” This maxim was established in 1789 by article 13 of the Declaration of Human Rights, adopted after the French Revolution. Its principle subsists today under the heading of vertical fiscal justice, which means that the taxes to be paid must take into account each taxpayer’s level in the scale of incomes.
The last thirty years have seen the very wealthy, mostly from the finance sector, enrich themselves at the expense of society in general, through a series of speculative bubbles leading to the bursting of the last bubble, based on subprime mortgages. In this context, it is deplorable to see the right wing think tanks persist in their endeavours to make the poor and what remains of the middle class, whose incomes have stagnated since the 1980s, assume the major burden of contributing to the maintenance of infrastructures and public services. According to Statistics Canada, the average annual income in 1985 in Canada was $30,000. In 2008 constant dollars, it is $30,033.
If, on the one hand Montmarquette and others continue to favour regressive taxes despite rising inequality, then on the other hand, the financial tsunami, which hit the G20 in August 2007, incited the British Prime Minister, Gordon Brown, to include in his stimulus package, a decrease of 2.5% in the VAT. Will this measure spread to countries affected by the recession? One hopes so, although the New Brunswick proposal of a flat tax on income is not encouraging. But there are Canadian observers who advocate GST reductions as part of a coherent financial stimulus program. Finally a genuine fiscal and social reform would eliminate regressive taxes, and would put an end to both, the multiplication of, and increase in, user fees, and other regressive impositions. To compensate, a truly progressive income tax regime should be reestablished, with more brackets, and rising rates applied to the wealthy and large corporations, along with the elimination of tax havens and fiscal paradises. As well, loopholes should be closed, and bailouts of banks should be curtailed and/or subject to strict conditions and regulatory measures
Raymond FAVREAU, Montreal, Canada
posted by TJN at 8:15 am
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