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Do you mean that politicians are self intereted.

It goes a long way beyond self-interested. Self-interested is you pull the wool over people's eyes to stay in power and keep quiet about it. I'm not sure what pulling the wool over the public's eyes and bragging about it constitutes.

Oh, come on. You're criticizing politicians for what, exactly? Seeking votes? You may as well criticize businesses for seeking money or celebrities for seeking fame. Politicians who don't seek votes - who don't play the game - don't get elected.

Don't blame the glory-seeking, power-hungry megalomaniacs who court our favour. Blame the electorate for bestowing it upon them.

I guess I forgot to take my cynicism supplement today...

Politicians will give voters what they want. If what they want happens to be stupid (e.g. the war on drugs or barriers to trade), politicians will be all too happy to give it to them. Politicians, like everyone else, respond to incentives.

That does sound right, but I don't take any comfort in it. Because then we'd have to deal with the question of just why this sort of hypocrisy isn't more widely recognised.

I though that Canadians like higher taxes anyway.

You give me no room to express self, Stephen...unlike Nick where I bust out of cell and triple-locked bathroom, reassemble computer, jump on bicycle to power up battery and post somewhat liquid comment.
Nick might have asked: Are Canadians too tolerant of PMO staff? with perhaps a caption of Brodie streaking down St. Catherine with nothing but a "Vote Conservative" sticker as his cod piece.
And then, the options:
1. Not necessarily
2. Only former staff
3. I defer until all votes are cast and counted

"Despite economic evidence to the contrary..." is going to become the new catchphrase around our house. It's useful in all sorts of situations:

"Despite economic evidence to the contrary, my VISA bill is lower this month!"

"Despite economic evidence to the contrary, we should definitely get a new car."

"Despite economic evidence to the contrary, WE SHOULD VOTE CONSERVATIVE."

... followed by gales of laughter.

Prof. Gordon, have you read Bryan Caplan's book, The Myth of the Rational Voter? If not, please do. I don't know if he gets everything right but it's a great read.

Yes, I have. It is a good read, but depressing. Sort of like this story.

I'm no fan of the Conservatives, and I view their decision to cut the GST during a boom as stupid and pro-cyclical. But:

I'm going to go ahead and posit that the accepted wisdom that consumption taxes are preferable to income taxes is
a) wrong
b) the last remaining policy based on the now-discredited supply-side/glibertarian dogma that has dominated for the last 30 years, to disastrous effect. Just another leftover bit of Lafferite-Greenspanism.

We all know that consumption taxes are regressive, but for some reason people are blind to the glaring problem with this: the wealthy (who benefit from a consumption tax rather than an income tax) are more likely to save, and therefore kill the stimulative multiplier effect of their enlarged after-tax income. That, or it could be invested in yet another transitory asset bubble that is unsupported due to deficient demand, leading to destabilization and sub-optimal growth. It's the same supply-side failure at work.

Now what is the perceived benefit of a consumption tax? It encourages saving and investment while discouraging consumption. hmmm.

Has anybody been paying attention for the last year? In all of Nick's posts: is the economy suffering from lack of saving, or lack of demand? Does lack of consumption encourage or discourage investment?

Even if it was a bad idea to cut the GST during a boom, isn't that what we should be doing now?

I think most Canadians now realize how foolish the GST cut was. Family board that this is, I'll leave it at that.

I have to disagree, at the risk of being flamed, about the GST being a regressive tax. Mildly regressive, yes, but those were fixed with rebates for lower and middle income individuals/families.

Those in the upper incomes can afford to pay a good accountant to find loopholes in the Income Tax Act to minimize their overall tax payments. The fact that they can write off some of their consumption doesn't mean the GST isn't a good idea.

If the GST were cut to 0, foolish thing to do, it wouldn't encourage consumption.

Have to consider the concern over worker EI eligibility and restrictions as a discouragement to consumption. Another reason to put more money aside in the unlikely event of job loss.

Savings are up due to uncertainty. Remove the uncertainty and consumption will resume, hopefully.

Re: NDP's position on GST

Not that the NDP like the regressive aspects of the GST, but I don't recall them ever calling for eliminating or even reducing it. Rather, they wanted (and are still calling for, I think) to remove it on some items like books and sanitary products.

By and large, I frankly wouldn't put them on par with the Conservatives on this issue like your update does...

"Those in the upper incomes can afford to pay a good accountant to find loopholes in the Income Tax Act to minimize their overall tax payments. The fact that they can write off some of their consumption doesn't mean the GST isn't a good idea."

Well, this is a moot point, as the GST is just as prone to evasion, gaming and outright fraud as income tax is. In fact, one of the early arguments in favor of consumption taxes favored them on quasi-libertarian grounds because they are easier to evade than income taxes. If you raise income taxes too high it leads to evasion, but the same is true of consumption taxes, as any resident of Cornwall can tell you.

"If the GST were cut to 0, foolish thing to do, it wouldn't encourage consumption."

Well, it wouldn't be very high on my list of fiscal stimulus measures, but a reduction in the tax should reduce the disincentive to consume over the longer term. I fail see how changes to taxes or subsidies could have no effect whatsoever on the underlying economic activity.

"Savings are up due to uncertainty. Remove the uncertainty and consumption will resume, hopefully."

you make it sound so simple...

Stephen, Stephen, Stephen who'd have known that the Harper gang would have based a tax policy decision on a short term political calculation. I think that the grand 2 percentage points have allowed me to accumulate enough change to buy one or two large coffees at a swell place downtown in Ottawa. Now I always thought the cut was aimed at the crew from Harper's adopted home - boy they can have him - Calgary. After all I think to be a strong Canadian nouveau cowboy you need one or two Lamborghinis parked in the driveway and, at about $250,000 for a used one, the 200 basis point cut to the GST might give a buckaroo a nights walking around change if one bought after the cut. I also don't think of the Harper gang as the tax cutters. The tax and fiscal update bunglers maybe, but tax cutters, thank heavens I don't openly drool or ... .

bob: Pretty much everything we've learned from public finance and from the literature on the effects of taxes on productivity and growth point to the advantages of consumption taxes. The only countries that have managed the trick of being rich while funding generous social welfare programs do so by relying heavily on consumption taxes: Sweden`s equivalent of the GST is something like 28%, if memory serves.

Dee: Exactly. The regressive effects of the GST are easily corrected.

Lasker: The NDP's 1997 platform promised to 'fight to reduce the GST and to phase it out'. All three parties have at some point set aside expert opinion on this issue and campaigned on the stupid option.

are you bothered with the politicians or the voters?

"even though just about every economist and tax expert said it was a terrible bit of public policy"

Does this mean making changes to the GST is a "game"?

The thrust of this posting seems to be the notion that politicians are always wrong. Yup. Just wait until the next tax INCREASE and we'll all be complianing. Move along, nothing to see here, move along.

BTW...I get a kick out of the phrase "just about every economist and tax expert". Kinda reminds me of...

"the science is irrefutable" or "every reputable scientist agrees"

Scientists have been wrong before. So have economists. More importantly it is very rare for "just about every" of anything to agree. Despite Mr. Geddes' claim.

I think the official Liberal position in 1993 was not simply to eliminate the GST, but to replace it with a more acceptable alternative. If I remember correctly, they went through an extensive process of studying alternatives and came up with the HST, which was implemented in three provinces and sort of in Quebec. The other provinces wouldn't play along so that was that.

Well, it could be worse:


stehpen: That's why I referred to it as the 'accepted wisdom'. At the same time, the basic premise of those arguments, that consumption taxes do not distort temporal decisions, while income taxes do, is wrong on the very face of the argument. IMO it is quite obvious that they cause more, rather than less distortion in temporal decisions.

The only way that you could imagine this to be a good thing is if you believe in some sort of crude "spending BAD saving GUD" protestant work ethic, which most supporters do.

Who are the main proponents of consumption taxes in North America? Alan Greenspan, CATO Institute, FairTax wing-nuts, Mike Huckabee, George Bush with his "Ownership Society" (see Krugman's evisceration), Greg Mankiw, the Mulrooney Conservatives, Fox News, the WSJ:
It's pretty much the same crowd that uncritically favors reckless deregulation, trickle-down economics and all that wonderful stuff. If you like Bryan Caplan, I imagine that consumption taxes would be right down your alley, but to allege that the entire economics profession agrees is flat out wrong.

If you want an example of an extremely smart public policy economist who sees through this charade, and is opposed to these consumption tax campaigns, Bruce Webb is an excellent example. There is a good reason (beyond pandering) that Cretien and Martin hated the GST, and would have gotten rid of it after getting us out of the massive hole that Mulrooney put this country into. Maybe it's a better alternative than a Manufacturer's Tax (the original reason for adoption in Europe) but not as opposed to income taxes (which is the argument that most conservatives make).

“I would abolish the GST. The Manufacturers Sales Tax is a bad tax but there's no excuse to repeal one bad thing by bringing in another one.” Paul Martin

Also, Sweden has the highest income tax rates in the world, so alleging that consumption taxes alone are the basis of their model is pretty disingenuous IMO. re: rebates: The rebates are a fig-leaf, and not even the most ardent consumption tax proponents argue that they render the GST non-regressive, they only argue (sensibly) that it somewhat attenuates the innately regressive nature of consumption taxes.

The UK has recently slashed the part of the VAT, and replacing it with a progressive income tax, for precisely the reasons I outlined above:

I think the US situation and that of Canada are two different stories. Compared to just about the whole of the rest of the western world, the US has a disfunctional political system. Getting anything changed, let alone a whole swag of systematic changes is very difficult. Stephen has argued here for sometime, that we would be better off with a less progressive taxation system BUT with more progressive expenditures. And this co-incidently is what happens in Europe (hardly known as a libertarian paradise).

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