Tax Competition

The Tax Foundation released its 2014 International Tax Competitiveness Index (ITCI) of 34 OECD countries and Canada’s overall rank was 24 out of 34 countries.  Despite our recent snagging of Burger King, we are apparently in the bottom third of OECD countries when it comes to tax competitiveness.  Interestingly enough, the United States did even worse than us coming in 32^nd place – ahead of Portugal and France.  However, despite our low overall ranking, we were in the top third when it came to consumption taxes where we ranked 10^th out of 34 (in this category the United States ranked 4^th).  This was our best performance.

So it is worth examining how we did in some of the sub-categories used to construct the consumption tax ranking.  Figure 1 shows that the Canadian consumption tax rate (calculated as the federal rate plus the average of the provincial rates) was the 8^th lowest of the 34 OECD countries.   Figure 2 shows the complexity of a country’s consumption tax system as measured by the number of hours a year a business needs to comply with the tax.  Here, Canada is about in the middle - in 16^th place. 

Figure 3 is a measure of the broadness of the consumption tax base – the consumption tax base as a percent of total consumption with broader bases meaning fewer exemptions and a better tax. Here Canada is in 20^th place, getting close to being in the bottom third.

Overall, Canada could probably move up the consumption tax rankings by broadening its base, lowering its rate and reducing the complexity of compliance.

In terms of the other taxes, Canada was 19^th in the corporate tax ranking (the USA was 33^rd by the way), 23rd in property taxes (the United States was 31^st), and 24^th in individual taxes (both income and payroll-the United States was 26th).  Canada is not a top performer when it comes to tax competitiveness in the OECD but then our economic history shows that our primary concern is not having our tax system and rates too out of whack with the adjacent United States.  It turns out we seem to be meeting this objective.

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Comments

[Bob Smith]

I confess, I haven't read the report, but when I see the US ranked 4th in the world in terms of the competiveness of its consumption tax system, I instantly question the reliability of the methodology. Granted, its anecdonal, but I'm forever hearing American clients complain about the onerous nature of the assorted US state and city sales taxes. Certainly, once you explain it to them, they much prefer the Canadian GST/HST system.

[Livio Di Matteo]

Bob:
I think the high score of the US on consumption taxes may be because they put a heavy weight on the low average consumption tax rate in the US - it has the lowest rate of the 34 OECD countries. I would need to look at the report more closely to see if that is indeed the case.

[Ron Waller]

KPMG did a study based on effective corporate tax rates (as opposed to nominal.) According to its report, Competitive Alternatives 2012, Canada has the lowest effective corporate tax rate of all major economies:

"Corporate income taxes are lowest in Canada (7.3 per cent effective corporate income tax rate), France (14.7 per cent), and China (14.8 per cent).

"At the other end of the scale, effective corporate income taxes exceed 30 per cent in Japan (31.5 per cent), Brazil (36.1 per cent), and Italy (37.6 per cent).

"These effective income tax rates are significantly lower than the nominal tax rates in most countries due to the inclusion of various tax incentives, including R&D tax incentives, in these calculations."

KPMG Competive Alternatives 2012 — Focus on Tax (Chp 3, pg 7)

Also according to OECD statistics for 31 high-income countries, Canada ranks #9 in lowest tax revenues as a percentage of GDP.

According to Harper's 2009 budget, he cut taxes by $45-billion a year (having inherited a $14-billion surplus.)

A lot of these tax cuts are questionable. $12B/yr GST tax cut most economist hated. Billions in boutique tax cuts. The 50% Martin-Harper corporate tax cut has shifted the tax burden onto personal income taxes. The TFSA is another tax cut the wealthy primarily benefit from.

The problem with the VAT is its low rate compared to other developed countries. If anything its base should be narrowed to exclude expensive utilities like electricity. Given the wealthy consume the lowest part of their income, broadening the base (including groceries?) would mean a bigger tax burden on everyone else.

[Bob Smith]

Ron,

Is it correct to say that reducing corporate tax rates has shifted the tax burden to individuals? My recollection is that corporate tax revenue as a percentage of GDP has remained rather constant regardless of corporate tax rates (and I believe there have been posts here to that effect). In any event, given that the corporate tax was not matched by corresponding personal income tax increases, it isn't accurate to say that they shifted the tax burden to the PIT. Moreover, since corporations are just legal fictions, corporate income tax is ultimately borne by individuals (and in a small open economy like Canada, likely by workers) so the distinction between CIT and PIT is not as meaningful as you suggest.

I'm surprised at the suggestion that the VAT base should be narrowed. Yes, the wealthy consume a smaller portion of their income, but they also consume significantly more than everyone else. The example you give of electricity should drive this point home, do you really want to give a tax cut that makes it easier for Richie Rich to light his 10,000 square foot mansion, heat his pool and hot tub, and run 100 inch flat screen TVs all over his house in order to help some dude on welfare save a few bucks every month in his electricity bill? Wouldn't it make more sense to, as we do, make everyone pay the tax, and provide tax credits (i.e., cash) to the guy on welfare.

Unfortunately, your critique of the VAT is consistent with a great deal of left-wing thought on the issue, at least in Canada, which explains why parties like the NDP insist on floating stupid ideas like cutting the GST/HST on electricity (or, in BC supporting the PST over the HST) instead of embracing the VAT as a fantastic (progressive) revenue tool with which to finance their agenda, as their social democratic cousins in Europe have.

[Bob Smith]

Livio,

I suspect you're right that the low rate drives the US result on consumption taxes, but again that really undermines the credibility of the analysis. Presumably if the US were to replace, say, it's high corporate income tax rate with a proper VAT, the competitiveness of the US tax system should increase (corporate income tax being a particularly inefficient tax, VATS being a particularly efficient tax), but it's not clear that that would be reflected in their overall analysis.

[Livio Di Matteo]

Ron and Bob:
There are aspects of the analysis I would have to question. I agree effective corporate tax rates would have been better for a comparison than the nominal corporate rate. As well,using an average of provincial sales rates to get a national number in both Canada and the United States. In the case of Canada, a simple average would yield a higher number than a population weighted average given the much higher rates in Atlantic Canada. As well for all the taxes examined, the sub categories apparently have equal weight- so in the case of consumption taxes, the sales tax rate has the same weight in calculating the score as the sales tax base variable or the complexity variable. It is an interesting question when it comes to designing a tax as to what is more important - the base or the rate or the complexity of the rules needed for the tax to function. So the reason the US does better than Canada with respect to consumption taxes in this ranking is because it has a much lower average consumption tax rate - even given that it includes local sales taxes in the average - and the complexity is apparently substantially less also - at 33 hours versus 50 for Canada.
Regarding the point about base broadening that has been made - when Canadian federal tax reform was proposed in the 1980s and then implemented starting in 1988 - the lowering and simplification of income tax rates and the institution of the GST - the mantra for both was lower the rates and broaden the base. The GST could have initially been brought in at a lower rate if the base had been broader. According to the ITCI report, the VAT/sales tax base as a share of total consumption in Canada is 49%. For the US, the figure presented was 38 percent. It ranges from a high of 99 percent in New Zealand to a low of 31 percent in Mexico in this ranking.
Still, these rankings are fun to look at.

[Kathleen]

KPMG has released the 2014 version of their report:

http://www.competitivealternatives.com/

[Livio Di Matteo]

Thanks Kathleen. It is a much heftier and different report as it examines total business costs (including wages, taxes, transport costs, location costs, utility costs, etc...) Canada ranks second amongst the 10 countries used in this report with business costs 7.2 percent lower than the USA. Mexico is ranked first with an 18.7 percent business cost advantage over the USA. Hmmmm...from a geographic perspective, lower costs ends against the higher cost middle.

[Bob Smith]

"According to the ITCI report, the VAT/sales tax base as a share of total consumption in Canada is 49%. For the US, the figure presented was 38 percent. It ranges from a high of 99 percent in New Zealand to a low of 31 percent in Mexico in this ranking."

Although the 49% sounds low, I suppose once you account for the fact that financial services and used residential properties are exempt, maybe it's not wrong. Still, that highlights the problem with the index, while financial services and used residential properties are exempt from GST/HST, they have at least some embedded GST/HST either on inputs or, in the case of residential properties, on new construction. So it's really only the incremental value of those goods/services that are exempt (which might still be significant). I'm just not sure this type of survey takes into account (or, in fairness, can readily take into account) those sorts of complexities.

[Majromax]

> I'm just not sure this type of survey takes into account (or, in fairness, can readily take into account) those sorts of complexities.

Isn't this possible to assess from national-level statistics? Take the revenue from the VAT divided by the (headline rate × consumption portion of GDP) and that should give the effective tax base. It's vulnerable to error cancellation, where double-taxed items mask non-taxed items, but in theory double taxation shouldn't be a problem in the first place.

[Bob Smith]

Majromax,

I think the errors would run both ways. You identify one, where double-taxation masks non-taxation (which I would have thought would be a serious problem if you're trying to measure efficiency/competitiveness of a taxa system), but presuambly double taxation would also show up as a broader tax base in that measure.

"in theory double taxation shouldn't be a problem in the first place."

In a properly designed VAT system, I agree, but of course, not all the taxes being measured here are VATs (the US taxes are principally sales taxes where double taxation is a real concern). Moreover, many of the exclusions from the Canadian GST/HST tax base are intended to get at double-taxation concerns. So, for example, we don't tax the sale of used residential property, at least in part (although there are a host of other reasons) to avoid double taxation on the initial cost of the property (although it also avoids any taxation on the subsequent appreciation in the value of land). Similarly, the non-taxation of financial services hides the non-recovery of GST/HST embedded in those financial services.

[Majromax]

Curious, I looked the methodology up in the study. They define the tax base as:

>> A country’s VAT or sales tax base score is measured as a ratio of the revenue collected by
the VAT or sales tax compared to the potential tax revenue under a VAT or sales tax that
is levied on all final goods and services.

The cited OECD report (which provided the non-US numbers) goes into a bit more detail. It seems that they're using the final consumption expenditures from national accounts. The OECD report discusses the limitations of that methodology, including that the final consumption figure includes items normally not taxed (such as government-provided services) and ignores items which often are (home construction).

[Ron Waller]

"Moreover, since corporations are just legal fictions, corporate income tax is ultimately borne by individuals (and in a small open economy like Canada, likely by workers) so the distinction between CIT and PIT is not as meaningful as you suggest."

Either that, or the corporate income tax is ultimately borne by shareholders and corporate executives. That's why the CIT cuts didn't "create jobs." The tax cuts increased corporate profits which went into the pockets of shareholders and corp execs in the form of bonuses.

In my opinion, the actual purpose of the CIT cuts was to fatten the stock portfolios of the well off. Since market fundamentalism is founded on self-interest balancing itself out, why not design self-serving economic policy?

[Ron Waller]

"The example you give of electricity should drive this point home, do you really want to give a tax cut that makes it easier for Richie Rich to light his 10,000 square foot mansion, heat his pool and hot tub, and run 100 inch flat screen TVs all over his house in order to help some dude on welfare save a few bucks every month in his electricity bill?" 

Obnoxious stereotypes aside, the reality is that lower income and middle income families pay a much larger share of their income towards electricity than the wealthy. Our value-added tax system was designed so that essential goods and services were exempt. So clearly electricity (and natural gas) should be exempt.

"Unfortunately, your critique of the VAT is consistent with a great deal of left-wing thought on the issue, at least in Canada, which explains why parties like the NDP insist on floating stupid ideas like cutting the GST/HST on electricity (or, in BC supporting the PST over the HST) instead of embracing the VAT as a fantastic (progressive) revenue tool with which to finance their agenda, as their social democratic cousins in Europe have."

Actually in Canada the right-wing is the most opposed to the VAT. The Harper Conservatives blew a $14B surplus on a GST tax cut. Again, obnoxious stereotypes aside, many other developed nations have VAT discounts for essential items. If I'm not mistaken, the Mulroney PCs excluded electricity from the GST in the first place (it was excluded in the short-lived BC HST.)

The VAT is a revenue tool. In progressive European countries, it pays for good public benefits (Canada ranks #23 OECD in public social spending.) A better revenue tool is progressive income taxation. Back in the centrist post-war era, the top tax income bracket in Canada and the US was 70%. We would do well to return to the days of Nixon and Diefenbaker, back when the economy was stable and high-growth and we paid our bills.

[Bob Smith]

"Either that, or the corporate income tax is ultimately borne by shareholders and corporate executives."
Right, but the empirical evidence from Canada generally supports the proposition that the CIT is borne by workers.

"That's why the CIT cuts didn't "create jobs.""

Do we know that? It's worth noting (as I believe Stephen and/or Mike have noted here and elsewhere) that the period from the early 2000's to 2011 saw, apart from healthy increases in employment, but also healthy increases in real wage growth at all levels of income. Of course, there are a number of factors that might explain those developments (as well as factors that should have inhibited them - namely a global recession), but at a high level our experience over the past 15 years is not inconsistent with the proposition that the CIT is borne by employees, and that reduced CIT corresponds to higher employment and/or higher real wages.

"The tax cuts increased corporate profits which went into the pockets of shareholders and corp execs in the form of bonuses."

Well, not to be technical, but corporate execs are employees, so to that extent you're agreeing with my proposition. Moreover, since they're taxed at a top marginal rate close to 50% (in Ontario), if decreased corporate income taxes increase bonuses, that strikes me as decidedly positive development for the fisc. As for shareholders, the dirty little secret is that the tax rate on dividends on Canadian resident shareholders has been steadily increasing over the past decade (to preserve the integration of the CIT and PIT tax systems).

[Bob Smith]

"Actually in Canada the right-wing is the most opposed to the VAT. The Harper Conservatives blew a $14B surplus on a GST tax cut."

Actually, both the right and the left-wing vociferous oppose the GST/HST (witness the opposition of the NDP in Ontario and BC to the HST, or the continued efforts by the federal NDP to nibble away at the GST) but for very different reasons.

For the right (or at least certain elements of it, the business right loves the GST/HST) the GST/HST is opposed because it is an efficient way to raise vast sums of money. In short, it is an enabler of big government (you see similar claims made by US conservatives). It is not coincidence that those countries with the largest welfare states are those with hefty VATs. Now, whatever one thinks about the merits of a small government, that is an opposition that is at least rationally connected to their political goals.

The left, however, loathes the GST/HST for its purportedly unprogressive nature. Whatever one thinks about the left's political objectives, this is an opposition that is wholly irrational. The west way to achieve their objective is to raise funds as efficiently as possible and distribute them to those who need it. The GST/HST allows them to do that, making the Canadian left's opposition to the GST/HST both baffling and crippling to their efforts to build a social democratic society.

"Again, obnoxious stereotypes aside, many other developed nations have VAT discounts for essential items. If I'm not mistaken, the Mulroney PCs excluded electricity from the GST in the first place (it was excluded in the short-lived BC HST.)"

Consider this example and tell me if you still think an exemption for electricity is a good policy from a social democratic perspective. Richie Rich has an income of $2m a year and an electricity bill of $12k a year. Paula Poor has an income of $20k a year and an electricity bill of $1k a year. Richie pays $1560 in HST on electricity, Paula pays $130 in HST on electricity.

Now, those numbers are made up, but probably not unrealistic, and so far I think you'd agree with the proposition that Paula pays a greater portion of her income on HST than Richie. So let's consider the impact of your proposal to exempt electricity from HST, it saves Paula $130 a year and Richie $1560 a year. I don't know about you, but reducing tax revenue by$1690 strikes me as a particularly inefficient way of saving Paula $130 bucks (particularly since it will tend to encourage both Paula and Richie - but probably more Richie - to consume more electricity).

Now consider the alternative (which closely mirrors what Canada actually does). Let's tax electricity, but give Paula a $200 GST/HST refundable tax credit (which isn't linked to what she spends on electricity). This makes Paula better off then in your proposal (since she gets an extra $70), costs the fisc far less than in your proposal (since you're giving Paula $200 rather than giving Paula and Richie, but mostly Richie, $1690) leaving more money for other forms of government spending, and still raises taxes in a manner which doesn't distort consumption and savings decisions.

Seen in that light, the sorts of proposals you see from the NDP to eliminate the HST on electricity, supposedly in the name of protecting to poor or middle class) appear to be monumentally stupid compared with the much better alternative of taxing electricity and providing refundable tax credits to the poor and middle class. Indeed, that example should undermine ANY left-wing opposition to a VAT.

And this is the point that proponents of VATS make repeatedly (and left-wing opponents of VATS routinely ignore) - when coupled with spending or tax credits a VAT can be as progressive as you want it to be. Raise the revenue and you can give it to whomever you want.

[Bob Smith]

"Back in the centrist post-war era, the top tax income bracket in Canada and the US was 70%. We would do well to return to the days of Nixon and Diefenbaker, back when the economy was stable and high-growth and we paid our bills."

Indeed, before the Kenedy tax cuts, the top marginal rate in the US was 90%. And guess what? It didn't generate much tax revenue, so that tax revenue from top income earners rose when the rate was lowered to 70% during the Kennedy administration. Certainly, in the US, I think the emprical evidence is that tax revenue from the top tax bracket when up after the Reagan tax cuts of the early 80s as well.

The question you have to ask yourself is the purpose of the tax system in a social democratic state to (i) stick it to the rich or (ii) raise revenue to provide social programs for (generally) the poor and middle class. If you choose (i) (and, don't kid yourself, for a not insignificant portion of the modern left, that is precisely why they want higher marginal tax rates), hey, 70% or 90% marginal income tax rates are the way to go. I suspect, though, that's not an appealing rationale for most voters. I suspect you'll choose (ii) which suggests, that we probably should be looking at what other successful social democracies do to raise money (hint, high VATs, high payroll taxes, moderate corporate tax rates and tax rates on capital income).

And, before you start fetting the heydays of the Diefenbaker government, keep in mind that a number of consdervatives would be quite happy to return to the fiscal policies of the early 1960's, when government spending (and government tax revenue) was significantly smaller than it is now. As I noted above, part of the conservative opposition to the US adopting more efficient tax tools (and the ongoing reliance in the US on corporate and personal income tax as the principal revenue raising tool) is precisely that the sorts of inefficient taxes used in the early 1960s make it very difficult to fund significant increases in government spending.

As an aside, for a bit of perspective for those who accuse the Harper government of slashing taxes to unimaginable levels, according to the OECD, in 2012, federal government taxation as a percentage of GDP was at the lowest level since... um... the Trudeau goverment of the late 1970s and early 1980s (It's actually remarkable how much federal taxes increased over the late 1990s). Oh my, those brutes.

[Jacques René Giguère]

Bob Smith:"corporate execs are employees, " In Ruritania, both peasants and court poets are employees of the Most Exalted Duke. But the court poets don't contribute to food production...
The high income tax rates are not there to raise revenu but to confiscate rents.

[Bob Smith]

Jacques,

I'm somewhat surprised at your denigration of court poets, I thought Quebec was the last bastion of the arts, holding out against the Philistine Harper government! Was I wrong? No doubt the court poet's contribution to society is valuable and will transcend generations (much like that, I'm sure, of the court academic).

In any event, I might agree with you if all income subject to the top marginal rate of tax is economic rent. I'd question the validity of that assertion as a universal truth. (or even a general proposition). More to the point, if they don't generate revenue, they don't confiscate rents.

Personally, I'd rather be getting 50% of something and using the money to fund social programs, then 70% of nothing, but I guess I'm a cold hearted reactionary like that. It comes to the question of whether you hate the rich more than you love the poor.

[Ron Waller]

"The left, however, loathes the GST/HST for its purportedly unprogressive nature. Whatever one thinks about the left's political objectives, this is an opposition that is wholly irrational. The west way to achieve their objective is to raise funds as efficiently as possible and distribute them to those who need it. The GST/HST allows them to do that, making the Canadian left's opposition to the GST/HST both baffling and crippling to their efforts to build a social democratic society."

Your crude stereotypes, like neo-classical economic models, exist entirely in the imagination and bear no resemblance to the real world.

Many progressives were opposed to Harper's GST tax cuts. Are you saying Harper and Western Canadians opposed to the GST are lefties? That's ridiculous.

There are some valid criticisms of the VAT. The very definition of progressive tax means high-income earners pay a higher tax rate. A flat tax means all groups pay the same rate. A regressive tax means the rich pay a lower rate than other groups. So the VAT is regressive in some ways. The rich consume far less of their income than middle- and low-income earners. Therefore they are paying a lower rate than the middle class. Low-income earners consume the greatest part of their income. But they get rebates.

Just because a "socialist" country has a high VAT is not evidence the tax is progressive. Left-leaning countries have higher taxes all the way around.

The ideologue might suggest that taxing consumption is more efficient that taxing income. So why not eliminate all forms of income tax and raise revenues entirely through the VAT? Just imagine the social programs we could fund then! In reality, if a country did that they would end up with Chilean level social programs because high-income earners would pay probably less than 5% of their income in taxes.

[Ron Waller]

"Consider this example and tell me if you still think an exemption for electricity is a good policy from a social democratic perspective. Richie Rich has an income of $2m a year and an electricity bill of $12k a year. Paula Poor has an income of $20k a year and an electricity bill of $1k a year. Richie pays $1560 in HST on electricity, Paula pays $130 in HST on electricity.
"Now, those numbers are made up, but probably not unrealistic, and so far I think you'd agree with the proposition that Paula pays a greater portion of her income on HST than Richie. So let's consider the impact of your proposal to exempt electricity from HST, it saves Paula $130 a year and Richie $1560 a year. I don't know about you, but reducing tax revenue by$1690 strikes me as a particularly inefficient way of saving Paula $130 bucks (particularly since it will tend to encourage both Paula and Richie - but probably more Richie - to consume more electricity)."

Yes, let's make electricity too expensive for low-income earners to use. That ought to end Global Warming!

First off, electricity is the greenest form of energy. Renewable forms of energy go into the electricity grid. So we want to encourage more use of electricity and less use of dirty forms of energy like oil and natural gas.

So not only is a VAT exemption on electricity right because it's an essential service, it also provides an incentive for society to become greener. In the near future, we want people to use electric cars which obviously must be cheaper to fuel than dirty-energy cars.

Second, absurdly high RRSP limits, TFSAs, corporate tax cuts, cross-the-board income tax cuts, etc. are a very efficient way of saving poor Paula nothing — unless one is foolish enough to believe in trickle-down economics.

The 0.1% consume a tiny fraction of their income in electricity, while electricity bills hit low-income earners the hardest. Since electricity is a very expensive and essential service, it makes no sense to soak the middle class and hurt the poor to "efficiently" tax the rich. There are other ways to ensure we have an overall progressive tax system — which after 30 years of continuous tax cuts that primarily benefited the wealthy (while causing government debt to soar,) we no longer have:

CBC: Canada's tax system less fair than it used to be, study says

"By the centre's calculations, the top one per cent of Canadian families — those earning at least $266,000 — paid 30.5 per cent of their income in taxes in 2005. That was less than any other income group — even the lowest."

[Ron Waller]

"Seen in that light, the sorts of proposals you see from the NDP to eliminate the HST on electricity, supposedly in the name of protecting to poor or middle class) appear to be monumentally stupid compared with the much better alternative of taxing electricity and providing refundable tax credits to the poor and middle class."

It's monumentally stupid to believe that VAT rebates go to the middle class. It's also incredibly foolish to believe the middle class is going to want to pay consumption taxes on soaring electricity bills so low-income earners can have a break.

As I have already established, the tax break wealthy families would get from eliminating the VAT on electricity is a tiny fraction of their income. If the goal is to make the rich pay their fair share of taxes — at a progressive tax rate — it's brain-dead stupid to believe taxing electricity consumption will somehow accomplish that.

[Ron Waller]

"And, before you start fetting the heydays of the Diefenbaker government, keep in mind that a number of consdervatives would be quite happy to return to the fiscal policies of the early 1960's, when government spending (and government tax revenue) was significantly smaller than it is now. "

Well tax revenues were 25% GDP in 1965 and 31% today. (Not sure what the spending levels are back that far.) But one must take into account that GDP growth back then was more than double what we've averaged over the past 15 years. So a bigger slice of a smaller pie is not a plus, especially after decades of government cuts to spending.

In fact, during the 24 years before the 1988 FTA, the economy grew 159% (1964-1988). The 24 years after, it grew a mere 72% (1988-2012.)

After 30 years of disastrous free-market reforms, we've suffered soaring inequality and debt (personal and government,) deteriorating GDP growth, people are working more for less pay and benefits, and the economy crashed and burned in another global economic meltdown. How many more free-market train wrecks do we need to suffer before we realize that flaky neoliberal ideology — self-serving economic doctrine cooked up by plutocrats — doesn't work? How many more will civilization survive?

"Personally, I'd rather be getting 50% of something and using the money to fund social programs, then 70% of nothing, but I guess I'm a cold hearted reactionary like that. It comes to the question of whether you hate the rich more than you love the poor."

Yeah during the post-war ear, free-market oligarchs were on strike hidden away at Galt's Gulch. They came back in the 1980s to destroy the economy...

[Bob Smith]

"Your crude stereotypes, like neo-classical economic models, exist entirely in the imagination and bear no resemblance to the real world.
Many progressives were opposed to Harper's GST tax cuts. Are you saying Harper and Western Canadians opposed to the GST are lefties? That's ridiculous."

Ron, if you want to be taken seriously you might have the decency to accurately state my position. I didn't say that only Canadian lefties hate the GST/HST, I said that both Canadian lefties and Canadian righties hate the GST/HST. But while the righties hate it for reasons that are at least consistent with their ideology, lefties hate it because they have a simplistic understanding of how it works, or could work. As your posts so aptly demonstrate.

And yes, while many lefties hate the Harper GST cut, those same lefties also opposed the imposition of the HST (in Ontario and BC) and are forever pushing various boutique GST/HST cuts of their own (the federal NDP), suggesting that their opposition to the Harper GST is not principled, so much as opportunistic.

And for what it's worth, my description of how the GST/HST works is actually a fairly accurate description of how our system works in conjunction with the GST/HST credit for low-income earners. You want to make the GST/HST more progressive? Up the rate and extent the scope of the tax credit.

[Bob Smith]

As I have already established, the tax break wealthy families would get from eliminating the VAT on electricity is a tiny fraction of their income.

I agree, but as the example I gave aptly demonstrates it still means that most of the tax break goes to the wealthy. While their electricity consumption may make up a smaller portion of their income, in dollar terms it's far larger than that of the poor.

"If the goal is to make the rich pay their fair share of taxes — at a progressive tax rate — it's brain-dead stupid to believe taxing electricity consumption will somehow accomplish that."

I come back to the question I asked Jacques. Do you hate the rich or love the poor? The proposal you suggested may be "progressive" (although I'm not sure how anyone favouring a tax cut that gives more money to the rich than the poor can seriously say that), but it is an expensive way to give limited tax relief to the poor. Contrast that with the example I put forth -based on the existing GST/HST system - where the rich pay more taxes, and the poor are made better off than in your example. If you want to be taken seriously tell my why my example is less preferable, from a left-wing perspective, then a blanket GST/HST cut on electricity.

[Bob Smith]

It's really too bad you are unwilling (or unable) to seriously consider the GST/HST policy that put forth as an alternative to cutting the GST/HST on electricity. In my simplified (but realistic example) your proposal reduced Paula Poor's tax liability by $130, and Richie Rich's tax liability by $1560.

In my alternative, Paula pays $130 in HST but gets a credit of $200, leaving her with a net tax liability of minus $70 (i.e, she pays negative tax) while Richie Rich pays $1560 (meaning that after the tax credit for Paula, the fisc. Has an extra $1490, relative to your proposal to spend on public goods). Paula Poor is better off than in your example, Richie Rich pays more tax, and the fisc. has more money. And you believe that your policy proposal is progressive? Wow, it just boggles the mind...

"Well tax revenues were 25% GDP in 1965 and 31% today. (Not sure what the spending levels are back that far.) But one must take into account that GDP growth back then was more than double what we've averaged over the past 15 years. So a bigger slice of a smaller pie is not a plus, especially after decades of government cuts to spending.

Um, you do understand that a slower rate of GDP growth doesn't mean that GDP is smaller, it just means that it's growing at a slower rate. Real GDP per Capita is much larger now then it was in 1965. The 31% of GDP we pay in taxes now represents a larger slice of a MUCH larger pie.

Jeesh...

[Ron Waller]

"But while the righties hate it for reasons that are at least consistent with their ideology, lefties hate it because they have a simplistic understanding of how it works, or could work. As your posts so aptly demonstrate. … "

"You want to make the GST/HST more progressive? Up the rate and extent the scope of the tax credit."

Clearly you are incapable of comprehending what "progressive" means. Progressive taxation means high-income earners pay a higher proportion of their income than other groups. A VAT does not accomplish this. Since high-income earners consume less of their income than other groups they pay less VAT in proportion to their incomes than the middle class. Ergo the tax is not progressive.

This is especially true of electricity. Top 1% income households consume only 4 times as much electricity as the average middle class household.

Mulroney's VAT was progressive in that it exempted essential goods and services. Your suggestion that taxing groceries, rent, prescription medication, etc. is more progressive could not be more ridiculous.

Fact is, if essential services like electricity and home heating were exempt, as they should've been, it would be a lot easier to obtain the democratic authority to raise the VAT. Now the issue's a nonstarter.

If Canada wants a more progressive tax system we will reverse senseless corporate tax cuts, reverse income tax cuts on the wealthiest (the only group to have made significant income gains over the past 30 years,) cut RRSP limits in half, get rid of the absurd TFSA, and bring in an estate tax (meritocracy over aristocracy.)

[Ron Waller]

"Um, you do understand that a slower rate of GDP growth doesn't mean that GDP is smaller, it just means that it's growing at a slower rate. Real GDP per Capita is much larger now then it was in 1965. The 31% of GDP we pay in taxes now represents a larger slice of a MUCH larger pie."

"Jeesh..."

Ok, here are my updated numbers from TED 2014: the Conference Board's Total Economic Database.

In the 25 years prior to the 1988 FTA (1963-1988), the economy grew by 176%. In the 25 years after (1988-2013), the economy only grew by 74.3%.

So if free trade and other free market reforms hadn't trashed the economy, and the economy grew at the same rate of the previous period, we would have $2.423-trillion in GDP today instead of $1.530-trillion (2013 US $ PPP.)

In 1965 we paid 25% GDP in taxes. Today it's 31%.

31% of $1.53-trillion is $474.2-billion.

If the economy was $2.43-trillion we would only need 20% GDP to raise the same amount of tax revenues.

Not only do we have a smaller pie (than we ought to have,) which the rich have a bigger slice of, the rich pay a much lower portion of their income in taxes than they did back then. So the free-market theatre of the absurd is complete.

[Jacques René Giguère]

Bob: I like courtly poets...
I don't hate the rich. Few people who have driven a Jagaur XK-R denigrate the experience ( the ignition troubles are not a bug, they are a feature).
I teach my students the Blinder priciple "In social policies, have a soft heart but a hard head".I don't mind a regressive efficient tax if it leads to a bigger pie to share.