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"I am greatly cheered by the fact that I live in a province governed by grown-ups."

Count me in. I live in Ontario and would like to move to wherever you are. Is it in Canada?

Do those grown-ups include the crowd that recently 'listened rapturously' to a reading of the FLQ manifesto?

I am satisfied enough that my provincial government (Ontario) is improving the tax system through HST and corporate tax cuts. The local PC Party's histrionics on this issue seriously undermines their credibility, especially considering that these are policies advocated by their former finance minister (Mr. Flaherty under Eaves).

Yeah, well, I was thinking about tax policy...

Fair enough. I'm just jealous.

"I am greatly cheered by the fact that I live in a province governed by grown-ups."

It's funny, when I read this line at first, I thought it said, "I am greatly cheered by the fact that I live in a province governed by grow-ops."

But no, that's me, not you.

For all the craziness of B.C. politics, the province generally is not doing that bad on the tax policy front, with a carbon tax implemented (and having survived an election) and the sales tax on track to be harmonized - although increasing health care premiums is a step backwards, in my opinion.

oh, I hope this gets cross-posted at the national post again. You'll become even more popular...

On a serious note, it is incredible the amount of hysteria that the HST can provoke. It is good to see that Charest is able to propose increasing the QST without the idea being considered politically suicidal.

Shorter Stephen Gordon: My opinions are sane, yours are insane.

"For all the craziness of B.C. politics, the province generally is not doing that bad on the tax policy front..."

Agreed. BC is, at this particular point in time, governed by grown-ups. Its the opposition leader who is either just stupid or cynically catering to public ignorance (never to be underestimated) who seriously needs to grow up.

BC is also phasing out small business corporate income taxes, and lowering the general corporate income tax. This is a good idea because it will reduce the spread between the two taxes - which right now seems to reward businesses for being small and punish them for growing.

What pisses me off about the whole HST thing was how the larger businesses who will clearly benefit from this measure have been largely silent, letting the governments in BC and Ontario be hammered by a bunch of petty shopkeepers and restauranteurs.

Ok, I object to consumption taxes, therefor I am infantile with respect to economics. You object to income taxes therefor you are a peasant with respect to power.

No that we have the ritual abuse done with let us consider some effects of differing tax regimes.

The question is whether to income tax (heavily) or not to income tax. I think we are in agreement that VAT is the preferred form of consumption tax.

The economist's argument is that income taxes promote inefficiency. I think you have that argument down. The only part I see missing is quantification. How much efficiency do we lose to high income taxes?

If income taxes are low some wealthy people invest money in various enterprises. Some of these enterprises are television stations, radio stations, and newspapers. Owning these media outlets permits the wealthy to hire people who write that wealthy people are good for world. Given that small shifts in popular support will produce absolute power in a FPTP system the subsequently elected government will support wealthy people over not so wealthy people (the drumbeat of the media will move at least some people away from supporting their actual interests).

So lower income taxes encourage power concentrations.

Which problem is worse right now? Lack of efficiency or power concentration?

I think I can leave that as an exercise for the reader.

Why are you opposed to consumption taxes? Please tell me you have a better answer than "because they're regressive."

And when did I say I was opposed to income taxes? Corporate income taxes, yes, but not labour income taxes.

I disagree. The BC NDP is very pro-tax. Pro INCOME TAX.

Especially high corporate taxes, royalties, stumpage fees, and similar.

Most of them find the idea of shifting the tax burden from income to expenditures to be morally repugnant.

Don't confuse the populist conservative left-wing BC NDP with democratic socialist regimes in northern Europe.

On the second point, that was not clear to me, my apologies. Can you have high personal income taxes and low corporate income taxes without opening tax avoidance loopholes?

On the first point I thought I was explaining that in the second part of the post. Let me take another run at it.

Fundamentally I think power concentration is currently (and generally) a worse problem than efficiency. Income taxes lean against power concentrations. Consumption taxes do not.

Part of the dispute is about who pays corporate income taxes. My understanding of your position on this is that corporate income taxes constitute a barrier to entry thus enabling oligopolistic pricing which moves the cost of taxes to higher prices and lower wages. My estimation is that taxes are not such a high barrier as to allow all taxes to be offset from the owners.

I'm afraid you misunderstand my position (and it's not some caprice of mine, I'm reciting the standard theoretical and empirical literature on the subject) on corporate taxes. It's not oligopoly that increases prices and lowers the demand for labour, it's the reduction in investment. Increased (reduced) productive capacity reduces (increases) prices and increases (reduces) the demand for labour.

What does a VAT/GST/HST have to do with "power concentration"?

Yes, there's a risk that people might play games to take advantage of the difference between lower corporate taxes and higher income taxes. Indeed, this is probably why it wouldn't be a good idea to reduce corporate rates all the way down to zero. The Nordic countries deal with this by using a dual income tax system; I don't know how successful that is.

As an economist, how can you seriously argue that raising the consumption tax is a good idea? Maybe it is in a world where the only policy options are (1) the raise income tax, (2) raise the consumption tax or (3) run a deficit until you go bankrupt but in the real world, there are an unlimited number of other things the government could do. Say, stop handing out subsidies to Quebec Inc. Stop subsidizing agriculture. Stop subsidizing politically popular groups and calling it culture. Stop subsizing arts degrees that for too many people are utterly worthless, both as economic skill builders and avenues to personal growth (and I say this as a person with an M.A.). Stop buying people's votes by throwing money at the ministries of education and health care.

In general, stop spending as though you've found a magic money-printing machine that allows you to tap unlimited resources. I think with $57,000,000,000 in spending in fiscal 2008-2009 it's not entirely lunatic to suggest that perhaps the government could find a dollar or two (or 10 billion) to save without orphans starving in the arms of widows on the street.

Ninety percent tax brackets existed in the past, and I fully expect to see them again in my lifetime. But to make it even, we could jack the consumption tax up to more European rates of 20% - 25%. Then everyone's a winner!

oh, I hope this gets cross-posted at the national post again. You'll become even more popular...

Be careful of what you wish for, for you may get it.

What does a VAT/GST/HST have to do with "power concentration"?

I left out a step. Relying more on VAT type taxes than income taxes leads to a concentration of money, therefor of power.

Money is one form of power. Galbraith has a short very clear exposition on the nature of power in "The Anatomy of Power".

Studying economics without power is like studying physics without gravity. You miss one of the major drivers.

Relying more on VAT type taxes than income taxes leads to a concentration of money, therefor of power.

Oh dear lord. That's the same damn "But consumption taxes are regressive!" line.

Is it really that hard to understand the part about giving low-income households money generated from consumption taxes? I've made the point many times (look it up in the 'Inequality' section archives) that the success of the Nordic countries in reducing inequality is due to their systems of transfers to low-income households. Their tax systems are roughly neutral as far as redistribution goes.

Why oh why is the Conventional Left so unwilling to consider the idea of GIVING POOR PEOPLE MONEY!?! Is there something that you've learned about Power (btw, I have a BA in political science, so I'm familiar with some of the basics) that explains it?

It's not quite the same as simply saying consumption taxes are regressive and doesn't really have anything to do with giving poor people money.

Consider a model where consumption taxes are high enough to redistribute enough money such that every one's consumption is the same. Assume in this model that there are some who's income is higher than that, which excess money they invest. That investment increases their income, which they then invest, and so on. In the absence of other constraints, the players with initial excess income will gradually acquire all the ownership and power. How much power they collect is partly due to how much power you can buy in the system.

In the Nordic countries the most obvious constraint on the money=power equivalence is that they have PR electoral systems rather that FPTP. It takes moving many fewer people to gain control using monetary manipulation (media ownership, etc) in a FPTP system than a PR system.

It's not that I don't think you can get a redistributive tax system based on consumption taxes, it's that I don't think our current governments are going to do that. Also, I think the shift will make it at least marginally harder to replace those governments.

It's an argument about order, first get PR, then go for consumption taxes.

As long as no party is supporting it, then I don't see why PR makes a difference.

The NDP supports it, and I don't see why that has any effect on the argument.

The NDP supports increasing the GST as a way of financing a program of transfers to low-income households?!?

That would be *fabulous* news if only someone in the NDP would say that this was in fact party policy.

No, the NDP supports PR. My apologies for not indicating the question I was answering.

Damn. And here I had gotten my hopes up...

Maybe someday in Canada we'll have a party that has a credible plan for reducing poverty and inequality. As it stands now, the NDP is not that party, nor does it have any intention of becoming it.

The Green Party comes close. They want to lower income taxes on the low end, drop payroll taxes for all, impose a fairly stiff carbon tax, and increase the GST.


And there spending policies look like they more or less target the poor, but there isn't anything like GAI. Not yet anyway.

I can except the HST if an only if the future provincial spending is capped at or even reduced from current level of just under $100B. McGuinty should (by law) apply any revenue winfalls to the debt and not go on yet another vote buying spending spree!

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