Canada’s Dangerously Distorted Tax Conversation

Aside · Posted by himelfarb on October 8, 2013 · 39 Comments 

“(In)visible Dialogue”. Installation by Wang King Road. 2011. Wikipedia Commons.

(This post was written by Alex and Jordan Himelfarb; an abridged version appeared in the Star here.)

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We don’t like paying taxes. This is not big news: we don’t much like paying any bills, and there’s probably never been a time when we didn’t grumble in particular about taxes. But somehow “tax” has gone from irritant to four-letter word, not to be uttered in public and certainly not to be discussed favourably in politics. It seems the Canadian political consensus is that you’d have to be nuts to talk about taxes unless you’re talking about cuts.

As we argue in our new book, Tax Is Not a Four-Letter Word, the Canadian tax conversation has become dangerously distorted. Any reasonable discussion of taxes must take into account the highly valued public services they buy. But in Canada, and throughout much of the Anglosphere, these inextricably linked concepts — taxes and public services — have somehow become divorced. We now live in an environment in which the first question we ask of any policy idea is “How much will it cost?” whereas we never ask of tax cuts “What will we lose?” Canada’s slow-motion austerity may blind us to the consequences of endless tax cuts, but they are no less real: a less resilient and generous country and a stunted political imagination.

But even as federal taxes as a share of GDP keep hitting new lows, even after billions in cuts over the last couple of decades by all levels of government, whatever their political stripe, and even as the costs of these cuts pile up,  more reductions are in store. Income splitting, for instance, would put money in the hands of middle-class families, many of whom feel stretched by decades of income stagnation. But a strong case has been made by experts that this tax cut would treat families inequitably, would create disincentives to work for some and would deprive federal and provincial governments of billions that could be used to better serve families and children — through, say, infrastructure or child care.

And yet there’s no indication that any party will fight this or any other cut. Even New Democrat Leader Tom Mulcair recently signalled that the NDP were full members of the anti-tax brigade. He promised that if he were to become prime minister, he would definitely not raise personal taxes — “Period. Full stop.” — though he admittedly left some room for various forms of corporate taxation.

The current conversation is in part a consequence of the neo-liberal economic policy that began to dominate American and British politics in the early 1980s, and emerged more slowly and subtly in Canada at around the same time. In this view, economic growth and individual freedom are best served by reducing government and its influence and letting the market do its work. But this was going to be a hard sell; people valued the public services their taxes bought.

The tax cutters, therefore, didn’t typically take on these services directly, especially the universal ones, medicare, education, pensions. Instead of a real debate about the role of government, about when we are better off sharing risk or leaving individuals to fend for themselves, people were encouraged to believe that we could have “Swedish-style services with American-style taxes”.   Politically, tax cuts are still treated as a free good — with little discussion of what public services would be lost and at what cost. We don’t discuss the implications of the tax cuts for timely access to affordable medical treatment or for the cost of tuition or for the quality of our infrastructure or for the safety of our food and water or for our ability to address new and emerging needs or respond to natural disasters.  We still get promises of tax cuts as though they will magically pay for themselves or will simply require greater efficiencies and less waste.

Of course the repeated headlines about the latest spending scandal or government waste undermine our already fragile will to pay taxes. Pointing to waste remains one of the most potent weapons in the anti-tax arsenal.  And some of the examples are indeed cringe-worthy.  These examples, however, lead to an inevitably exaggerated picture of just how much we might be able to save through cutting waste. Governments of every stripe have for years been attacking waste and inefficiency, as they should.  And at least some of the concern about waste is a proxy for disagreements about what government should be doing – and these will always be with us.  Further, no organization, public, private or in between, will ever be operating at 100% so the critic  will always have some examples of waste to point to.

Yes, reducing waste and increasing efficiency must be built into how we govern but we cannot lose sight of the fact that the cost of waste is  a very small portion of government spending.   As our former and intrepid Parliamentary Budget Officer, Kevin Page, cautioned us, the numbers on waste and inefficiency never add up; tax cuts inevitably lead to eroding public services, rising inequality, environmental deterioration and lost opportunity. There is no gravy train and no free lunch.

But changing the conversation is never easy. North Americans under 40 have never really known anything other than neo-liberal politics and governments that seem to be backing away, so many will understandably see small government and low taxes as the only option. Those of an older vintage are invested in the current model —many have done quite well by it  So it’s not surprising that, despite the scale of our economic, social and environmental challenges, we keep going down the same path.  Nor should it be surprising that many doubt that it can be otherwise. Our politics hasn’t offered up a grand alternative.

One reason is fear of the political consequences. In 2008, then-Liberal leader Stéphane Dion took a risk by campaigning on a carbon tax. So great was his defeat that the leaders who followed quickly closed the door he had opened — and what might have been a prelude to a new conversation has become a cautionary tale. While there is some evidence that public attitudes toward taxes are not as negative as our politicians seem to think, we won’t know for sure until more of our leaders pursue their convictions and persist through whatever blow-back follows.

We do have choices.  Other countries have chosen higher taxes to fund more generous social programs, to invest in a more sustainable economy, to reduce inequality.  And they have shown that this can contribute to greater productivity.  As Canadian philosopher Joseph Heath points out, because they tax and invest more they seem to take greater care in how they organize both their taxes and their spending. “Tax and spend” is always on the agenda, not just cut and cut.  Our book offers some broad direction on what smart and fair taxes might look like.

We are seeing some encouraging, if not wholly satisfying, signs that cracks are beginning to appear in the anti-tax consensus both here and in the United States. President Barack Obama, urged on by billionaire Warren Buffett, proposed a tax hike on the super-rich; several provincial budgets offered modest, temporary, always apologetic tax hikes; Ontario Premier Kathleen Wynne acknowledged that the province will need to find new revenue sources to fix Toronto’s transit mess.

Still, the state of that last debate suggests we’re nowhere near ready to have the discussion we need about the country we want and whether we’re willing to pay for it. The costs of decades of cuts are increasingly visible, felt first by women, the young and the most vulnerable, but ultimately by us all.   We cannot debate the choices – or even see them – if taxes are off the table.  There is no way out without a different conversation on taxes.

Filed under Improving public institutions, Post featured on front page · Tagged with government waste, income splitting, Joseph Heath, Kevin Page, neoliberalism, Stephane Dion, tax and spend, taxes