Tax Is Not a Four-Letter Word
Ironically it is in the anti-tax U.S. that a conversation has erupted on taxes. Warren Buffett and a few other billionaires helped open the door, if only a crack, and President Obama has, finally, made taxing the rich a key means of funding his jobs plan. In the context of all that is happening now on Wall Street and beyond, these now seem like small and belated steps. Bigger things are in the air. But the conversation is now engaged and, judging from the reaction — accusations of class warfare, “no tax” pledges — tax is a proxy for these bigger things.
Here in Canada, no such conversation – only a few brave voices. We continue to reward politicians who avoid the issues – or promise more cuts. But without an honest conversation about tax, we won’t be able to face up to our challenges and we will sleepwalk towards a smaller, meaner Canada.
We ought not wait too long. We need that conversation here. We need it now.
For years, we Canadians have watched our neighbours take a much tougher anti-tax stance than anything we have known here. We saw that play out, almost unbelievably, in the recent extension of the Bush tax cuts in the face of trillion-dollar deficits. We were bewildered while watching the manufactured debt ceiling fight and the eleventh hour agreement to cut government – that is, services – by over a trillion dollars rather than say no to another tax cut for the country’s millionaires and billionaires. It was as though our neighbours, always able to reinvent themselves, were now stuck, with the same tune playing over and over again: Tax cuts are the magic cure for all that ails.
In the meantime, evidence to the contrary keeps mounting. Paul Krugman is keeping us informed of the human costs of the endless tax cutting in the U.S. where, in community after community, fire stations are privatized, streetlights dimmed, essential services choked. And all this without any evidence that the years of tax cutting delivered the promised benefits.
In Canada, we have traditionally had a more benign view of taxes. Like other northern countries, we have always understood that taxes are the price we pay for civilization and for a better future. While there are legitimate disputes regarding how much tax and of what sort we have generally accepted higher taxes as a way of funding public goods and services, redistributing income to avoid the worst excesses of inequality, and shaping the future to the extent we can.
But in Canadian politics another story has been unfolding. In the last federal election, all the parties seemed to be competing for the austerity and low tax crown. Apart from a minor skirmish on corporate taxes, nobody wanted to be seen as a tax and spender. In Toronto, the mayor won on the promise of tax cuts and an end to the gravy train (if it can ever be found). In the recent Ontario election, we heard our own version of no tax pledges. The Conservatives promised deep cuts. The Liberals promised no increases. And the NDP promised tax breaks for families and small businesses, offset somewhat by higher corporate taxes. Shortly before that, BC said no to the HST. And one wonders what precedent this tax referendum creates. Federally the government is continuing a decade of reduced taxes – even though we are still running deficits and even as the gap between the rich and the rest grows.
It has by now become a political truism that any politician would have to be nuts to propose tax increases to Canadians. But polling from both Environics and Ekos shows that Canadians, while averse to tax hikes, continue to value what our taxes buy. Then what’s the problem here?
The Last Free Lunch
The late-70s are a good place to start to understand this shift in attitudes. Then and throughout the eighties, neoliberalism – free market ideology – took full bloom in the aftermath of the serious economic stagnation of the time.
The solution, according to neoliberals, was to let the market do its work and get government out of the way. The best way to do that: cut off their revenues, cut taxes. As Milton Friedman, chief architect of this U.S, neoliberalism, liked to put it, when governments try to solve a problem they almost invariably make it worse. Progress would come not from our collective efforts to build a better society – there is no society, said Thatcher – but from pursuit of our individual interests in the market. So began three decades of an unrelenting assault on government.
No fancy theories here about how tax cuts automatically create jobs. The sales pitch was simple and it was perfect politics: tax cuts would be so beneficial to the economy that they would pay for themselves. Tax cuts are free – the last free lunch.
This notion that taxes are somehow separate from the services and goods they buy is now part of political culture. I am reminded of two images that capture the zero tax spirit of the Tea Party and the continuing search for a free lunch. The first is a now famous video of a Tea Partier holding a sign demanding that the government keep its hands off “my medicare”. More recently another protest photo shows a group of anti-taxers with a sign that reads “Cut Taxes, Not Defense”. Whether one favours “guns” or “butter”, taxes apparently have nothing to do with it.
Hugh MacKenzie, a research associate at the Canadian Center for Policy Alternatives, has written for years about how this separation of taxes from the services they buy has distorted the conversation in Canada as well. One way that the idea of tax cuts as a free good is maintained is through the false promise that only waste and inefficiency will be cut. No politician, no party, favours waste and inefficiency and every government tries to reduce both – but tax cuts on the promise of ending the gravy train almost never find enough gravy.
The constant assault on government waste and the parliamentary time spent on the scandal of the day themselves have enduring costs; they erode the public’s trust in one of our most powerful tools for managing change and shaping the future – our own government.
Of course deference or blind trust is dangerous – governments must be kept in check by a vigilant citizenry, independent judiciary, and if we are lucky, effective media.
But the absence of trust is equally dangerous. It makes it hard for us to act in our own best interests. Most Canadians do know that the teachers and firefighters, the police and health care workers, the roads and bridges and traffic lights, the help when we are down or temporarily out of work, the child and elderly benefits we receive are all paid for through taxes. But, we are still reluctant to pay those taxes. We will always say no to taxes if we believe government is inefficient and wasteful or incompetent or worse.
We are falling into what game theorists call a social trap. Even when we know that cooperating with others would serve our collective interests, absent trust, we go off on our own. The absence of trust limits our ability to act collectively and imagine new possibilities. It takes the future away from us and hands it to “the market”. No trust. No taxes. Trapped.
This growing distrust is of course not just a result of concerns about waste or efficiency or even ethics – it is much bigger than that. Perhaps it is the result of the increasing centralization and remoteness of government. Perhaps it is the result of the explosion in access to information, the increased anonymity of urban life, all this nurtured in a culture of individualism and consumerism. Perhaps too it is a result of the increasing authoritarianism of government, especially after 9/11. But it is no doubt fueled dangerously by this almost constant assault on the very idea of government.
In the 80’s, governments knew that they had to reinvent themselves for the information age as problems seemed to be more complex, unfamiliar and conflictual, when the pace of change was accelerating, and citizens wanted greater ownership over their public services. This was a time when the talk in Ottawa, and Washington and London, for example, was less bureaucracy, fewer rules, more flexibility to tailor services to changing and diverse needs – and more steering, looking at the big emerging issues, and less rowing. This reinvention was not going to be easy or smooth.
In fact, it never happened. It ran crashing headlong into distrust and has never quite recovered. Mistrust of government and a preoccupation with waste led not only to cuts but also, and at the same time, to expensive layers of control and oversight that made government no more accountable or transparent but certainly more risk averse and inefficient and therefore less worthy of our trust – a self-fulfilling prophecy.
Greater transparency was supposed to be part of the solution but things haven’t worked out that way. In fact, our obsession with uncovering waste may blind us to the big issues. So, even as we know more than we could ever want about how officials spend on travel and hospitality, government seems more opaque than ever – with almost no debate, for example, on the cuts to the GST which took over $13 Billion annually out of government revenue, or almost no information on the costs of the Omnibus Crime Bill or how it is supposed to make us safer rather than just meaner. That is not real transparency. Trust continues to decline.
And so, next door, we see President Obama, in speech after speech, gamely trying to remind his listeners of government’s positive role in pursuing justice, security and prosperity. He is trying to break out of the trap and that is a tough road. We all know from our personal experience that trust is easier to break than to rebuild.
The Inequality Trap
As we cut taxes and make them less progressive, the costs of the free lunch accumulate. While the most obvious signs may be longer wait times, potholes, and crumbling bridges, more insidious and worrisome is the inevitable rise in inequality.
The Conference Board is the latest to sound the warning that inequality is on the rise here – and fast. As the British researcher Richard Wilkinson has documented, extreme inequality – in particular, the growing gap between a few very rich and the rest – is corrosive and costly. It diverts capital, stifles demand, deprives us of the talent we need – and erodes trust and undermines democracy. It also eventually turns us against each other – the gated community only a physical manifestation of a deeper divide.
Inequality feeds and is fed by divisive and fear based-politics, what the writer Benjamin DeMott calls “junk politics”, a politics which has contempt for evidence and experts, plays to both our fear and vanity, and divides us into hard and fast moral categories – villains and heroes, criminals and victims, hard-working tax payers and free-loaders, job creators and the rest.
When the middle rungs of the ladder disappear, when the gap between top and bottom becomes too great, feelings of superiority and inferiority almost inevitably follow. Many at the top come to believe that they deserve all they have, that they are the ones who create the jobs and keep the economy running. The very successful too often forget how much they owe to others, including earlier generations more ready than we to sacrifice and pay taxes. I have always been struck by how most of us believe in luck unless we become successful. Then luck suddenly has nothing to do with it. In extremely unequal societies the rich, believing that they truly are the job creators, will often exert all of their considerable influence in the fight against paying more taxes and they have been very successful.
At the other end, if the rungs of the ladder seem too far apart to climb, then those at the bottom will wonder why they should participate at all. If we think that others will exploit the system or consistently turn it to their advantage, if we believe the game is unfair, we will not want to play. If the game is rigged, why participate, why vote, why pay taxes?
In the fifties when Canadians were far more willing to pay taxes – and vote – most thought of themselves or at least their families as on the way up. With extreme inequality, aspiration is blunted and replaced by fatalistic grumbling or hopelessness and opting out – or acting out.
Choices For The Future
Perhaps of all the reasons that tax has become a four-letter word, this idea of blunted aspirations is key. The baby boomers, who still hold considerable sway, especially in government, seem today more interested in holding on to what they have than in building something new. And for the first time in generations, Canadians worry that the young will not have things as good as we did. Taxes are, among other things, an investment in the future. How much harder is that to sell when people believe they are managing personal and collective decline? Without aspiration, without hope, many will want to keep all they can for themselves and their families to get through the day.
Of course we are not there yet. Canada remains more equal than our neighbours and we still have extraordinary assets and great promise. Many provincial governments have resisted the call for more cuts. But we certainly cannot afford complacently to wait much longer as the bills for our free lunch pile up: growing inequality, sagging productivity, deteriorating environment. We cannot build a future out of desire for more of the same and in the same way. And we cannot build a future on the belief that it does not belong to us – that it belongs to the market.
For too long those of us in public policy have got it wrong. Even the most compassionate among us argued that we have to get the economy right first, that we would look at social and environmental issues later when we could “afford” to. But surely it’s now clear that we cannot get our economy right if we don’t treat society, democracy and environment as central. We cannot afford to do otherwise. We will not retake the future until we change the conversation and that has to begin with a commitment to greater equality and fairness, to jobs and opportunities for the many and not wealth for the few, to dignity for all those who fall out of the market in tough times or cannot get in through no fault of their own, and a concerted effort to combat poverty and its extraordinary costs to us all.
The future will need a more innovative Canada, a more productive Canada, a more confident Canada – but none of that will happen without a more just and equal Canada.
Breaking Out
We have to be smart about taxes and we will all have to carry some of the burden. The consensus among economists was that cutting the GST was a mistake and the majority of them would also defend the HST. And sooner or later we are going to have to put a price on carbon to share the costs of a new economic and energy paradigm. But a good place to start is to ask the rich to step up. When it comes to taxes, it is smart to be progressive, to ask the rich to pay a bit more for that lunch that none of us is getting for free, and to ask those who do greatest damage to the commons to pay more for its preservation.
There is no systematic evidence that tax cuts are the road to economic growth or that tax cuts to corporations or the rich produce jobs. Our love affair with low taxes is based on unproved assumptions about the benefits and no accounting of the costs.
It is time to make some hard choices about the Canada we want, about what services we see as essential, about how much inequality we are prepared to tolerate, about our willingness to take back the future.
Already we seem to be tiring of the fairytale. Voter turnout is a sign that we are not inspired by the leadership we are getting.
What we are seeing right now in the U.S. and spreading to Canada is quite remarkable. People, mostly young, but also across the generations have decided not to wait for their politicians to lead. All great change starts outside of conventional politics and now the “other 99 percent” are saying no to more of the same on Wall Street, at the Tar Sands, and beyond. They are saying that the economy and the environment are being wrecked by a powerful few and it is not right that the rest have to pay the freight – and they are demanding better.
Some critics are wondering aloud what specifically the other 99% want, but they are not writing a political platform. They are telling stories of people left out, of debts too big to handle, of lost jobs, bad jobs and stagnant incomes, of family hardship and no helping hand. They are saying a lot of things. That maybe we have it all wrong. That they no longer believe the promises.
No one knows where all this will all go and what its impact will be except that it creates an opportunity, overdue, to change the conversation. Much will depend on leaders across every sector of our society joining that conversation.
We always get more from our political leaders when we demand more, including, I suppose, more taxes. And we always get the government we deserve and the future we are willing to make and pay for.
Notes prepared for an address at the Gardiner Museum, October 12, 2011. The event was organized by The Literary Review of Canada and by TVO (watch a video excerpt here). It was sponsored by Canadian Centre for Policy Alternative. A shorter version appeared in the Globe and Mail here.
Alex's Blog 
Yes! You may be interested in a letter I wrote about Neil Reynolds’ proposal on re-implementing an estate tax (for him it is a libertarian issue). In it I discussed two other areas where US taxes are higher and fairer than in Canada. (The US is always used an example of lower taxes — we totally ignore areas where its taxes are higher and fairer.)
“Neil Reynold’s excellent column outlines some of the moral (and presumably fiscal) advantages of an estate tax. Perhaps this will lead to a serious debate about reviving an estate tax in Canada.
Indeed, it is an opportunity for the Globe to initiate an even larger discussion about taxation. One element will be to think seriously about the merits of other US taxes that make better moral and fiscal sense than what we have in Canada.
Two taxes that immediately come to mind are payroll taxes for public pensions and taxation of non resident citizens.
In the United States, public pensions are more adequate, 146% higher in fact, than they are in Canada. This is not only because the payroll tax is much higher in the USA, and the retirement age a year later, but most importantly because the payroll tax applies to the first $106,8000 of income, rather than as in Canada, only $48,300. (A person with an income over $106,000 in the USA pays a social security payroll tax of $6621 whereas in Canada the maximum deduction is $2217.) You get what you pay for. We need to get more but we need to pay for it also.
IRA overzealousness notwithstanding, another important difference concerns the taxation of non resident citizens. Canada and the USA both provides services to non resident citizens. These benefits include evacuation from conflict zones, and so forth. However only the US requires non residents to declare their income and to pay tax, if foreign taxes are lower, on income over $91,600. Canadian non resident citizens have the advantages of citizenship without the obligation to pay tax. It’s a good deal, but is it fair to the rest of us?
Let the discussion begin.”
LikeLike
Thanks Lewis, a very valuable contribution to the discussion. I couldn’t agree more on the estate tax in particular. interesting that payroll taxes so vital to social security were cut as part of the job’s plan.
LikeLike
The complexity and lack of transparency in the exceptions to the exceptions in the tax regulations are out of control. The 300 thousand tax lawyers and accountants who defend the current system will not support reform. I still believe a single tax system with the correct lower income exemption combined with the GST is the way to go. More and more senior business leaders are designing their business plans around direction from their rax advisors , while their entrepreneurship and ingenuity takes second place. We should not be hesitant to reward achievers and job creation risk takers. So often the critics of reform focus on the few super wealthy and forget the real engine of the economy is smaller business leader who looks a the tax act as if it is a language that he or she could never learn.
LikeLike
Thanks Dennis though “the real engine” of the economy is people, workers, citizens, entrepreneurs, not just the latter, and putting people second just plain does not work.
LikeLike
Thank you for a dead-on assessment of the current economic and political situation. I particularly appreciate your description of the frustrations felt here in Canada, which are not necessarily over the level of inequality that exists today, but over the prospect of greater inequality over time.
In our society, there are many mechanisms by which wealth flows from poor to rich, but few mechanisms by which wealth flows from rich to poor. Progressive taxes — particularly graduated income taxes and proper corporate taxes — are one such mechanism, provided governments invest revenue collected in social programs that benefit people. Fair wages — legislated or negotiated — are another. Unfortunately, we currently have a Federal government that seems dead-set on lowering taxes for the rich and for corporations as much as possible, on reducing government investment in social programs, and on cracking down on workers’ right to engage in collective action when negotiating fair wages (look at the recent Postal lockout, and the aborted Air Canada strike). These actions promote the trend for wealth to pool in the hands of the rich and in corporate coffers, out of reach of a large segment of society. It is due to this trend towards greater inequality that I doubt the Canadian “occupy” movement will be a flash in the pan; although we might be better off right now than our neighbours to the south, we are currently headed in the wrong direction. If we allow this to continue, a crisis is inevitable.
LikeLike
Thanks for this Vikram. In The Spirit Level, Wilkinson and Pickett are agnostic about how we combat inequality just so we do it. This is not a program but a collective commitment; progressive and smart taxes, universal access to health and education, well designed and accessible employment insurance, anti- poverty initiatives, incentives for employee ownership, and strong labour regulations and preserving collective bargaining are all part of the package.
LikeLike
Tax is indispensable because of the public products provision.
But the majority of people are not willing to bear tax burden while they are enjoying the public products.
What is the optimal tax burden? It seems there is no answer to this question, because it is up to the configuration of different taxes (direct tax and indirect tax; income tax and consumption tax) and the public revenue usage.
What is the government responsibility domain in the provision of quasi-public products? The answer to this question would affect the amount of the government revenue.
Am I right? Dear Professor.
LikeLike
Thanks Wendy. Absolutely – first comes some sense of the Canada we want – and yes we would pay for that with some combination of taxes guided by a few key principles including that generally we must all share the burden, that those who benefit most should pay at a higher rate, and those who cause greatest damage to the commons should pay most. The combination of taxes as you set out ( and payroll and I would argue estate taxes) allows us to consider equity and efficiency together. Our failure to put fairness at the centre has, I am convinced, contributed to the growing anti-tax sentiment. It is not so much that people aren’t ready to pay their share, it’s that they don’t want to be taken for a ride. Bo Rotstein, the Swedish political scientist, has done great work on this.
LikeLike
I think part of having this conversation is to also clarify the picture of tax incidence. We have that paper, who is it by (Gillespie?) from the mid-1990s, updated a few years back by the CCPA (but pre-TFSA), showing that we were quite close to a flat tax when all taxes were considered. Then there are the more recent CCPA reports suggesting regressivity in some parts of the income distribution. And then there’s the question of very high effective marginal tax rates in the 20,000-30,000 range (for instance Stapleton’s piece of a few years ago).
It would be useful to put these various pieces (and similar ones) together, so that we get a sense of what rates people are paying now, before thinking about how to move the existing burden or share responsibility for new taxes.
LikeLike
There is work to be done here and I will see what I might post on this.
LikeLike
Bang on again!
Inequality correlates strongly with… everything that is bad. Not only must we pay taxes to pay for the services we want/need but the redistributive component of progressive taxation is intentional and serves the public good. In order for taxation to be equitable it must be significantly progressive. Those of us with higher incomes will still have high incomes – no one’s marginal tax rate is anywhere near 100%. I tell colleagues who complain that “it’s not worth earning extra income because taxes take it all” that I will gladly take their income and pay the tax on it.
The right-wing has glorified what used to be shameful… selfishness and greed. As Paul Samuelson wrote about people who claimed “I earned this on my own”: Left on their own they would be in the woods eating berries. We earn our livings as part of and with the resources of a society. We keep more than our share as it is. Many have shown how much initial advantages and chance determine how rewards are distributed. It’s hard to argue convincingly that success and failure are “fair” so how can having to pay be unfair unfair. The cost of living in Canada is taxation. I get good value for my money.
LikeLike
Bill, well said. Too often we hear that pensions or medicare or unemployment insurance is part of a culture of entitlement. What nonsense. We collectively have been wise enough to pool risk and insure ourselves in the event of hard times or personal misfortune. The real culture of entitlement are those who claim that they are entitled to all they have, that they owe nothing to others or to the country that enabled them – “hands off the money”.
LikeLike
I probably should read the rest of the comments but I had to jump in and agree with both of you. Brilliant presentation of this topic, Alex. Something that definitely needs to be discussed.
Bill, I too am just sickened by the fact that anyone should consider any gains made for the middle and lower classes as part of a culture of entitlement. I am always gobsmacked to hear some colleagues and friends attack union benefits as the cause of economic downturn without ever considering what freaking massive tax cuts have done to erode our public benefits. The middle class has been made the fall-guy for all the economic ills. I think that the Occupy Wall street and similar protests (The Indignant) protests in Europe are basically about that – call a spade a spade sort of speak – call the richest who have most benefited from theses changes to task.
What I don’t understand is how we could loose sight on how cost effective it is to deliver services and benefits by taxing on a large scale. I just look at how expensive it is to get extra health care through our workplace insurance plan and realize that without numbers, the pooled price is really steep. I see the same inadequacies in spreading the price of services when municipalities go to service fees rather than raise taxes. I would rather tack on another $10 on my annual taxes than pay $50 a year for garbage collection.
LikeLike
But finally it looks like more and more people are challenging the junk politics that blames unions and working people, and that attacks any and all of our collective efforts to build a better society and of course the taxes that pay for this. Thanks BY
LikeLike
First, while not confined to the U.S., I think much of the discourse on taxes emanates or is instigated by our American cousins, so I think it behooves us *and* them to take a step back and ponder the origins of the distaste for taxes. I’ll go out on a limb and suggest that the United States was founded by those who were intending to not remain part of the Empire while Canada’s earliest European settlers were very much extensions of the French and British empires. For the Americans, taxes simply went back to England and served the King’s pleasure. For those in what became Canada, taxes were used to provide services. That is likely a terrible oversimplification but the point is that the U.S. was essentially founded on a contempt for everything taxes were seen to stand for, partly because of the manner in which taxation was likely experienced. Things, or at least attitudes, haven’t really changed all that much in the intervening 250+ years.
In some respects it is ironic that even though the level of services provided to citizens has ramped up considerably since the 50’s, you note that willingness to pay taxes has declined. At the same time, I think the manner in which taxes translate into services, and indeed the number of services that run in the background and get taken for granted, has grown more complex and harder for many to fathom.
I am reminded of something I used to receive from the province of New Brunswick when I lived in Fredericton in the early 90’s. At the end of the fiscal year, you’d receive a list of the health services you had used and what the cost was to the system. You didn’t have to pay it, of course, but that was more or less the point: here is what your health and well-being *would* have cost you if your taxes were not going towards providing it on a collective basis. It was a remarkably sobering bit of information, and I hope they’re still doing it.
I often tell my kids “Don’t make it look too easy, or else people will come to think that it IS easy”. The advice is not intended to make them shirk any responsibility or to dupe anyone. Rather, when we bust our hump behind the scenes, it is all too easy to set up unrealistic expectations that can simply never be lived up to on a consistent basis, ultimately disappointing everyone. And I think part of the dilemma with taxes is that, with the exception of perhaps those in the public sector (but sometimes even them too), a great many citizens have little idea of what is required to provide the services they receive, or even the services they receive without thinking about them as “services” (Hey, I didn’t die from botulism today, I knew what the temperature would be, I got to *drive* from Ottawa to Montreal, and there were Stop signs at all the appropriate intersections! How cool is THAT?). As a consequence, taxes seem to be something that just floats off into the void, much like money for King George. It would not be too much of an overstatement to suggest that citizens are often ingrates because they have no idea what they have received. And even when they are aware of a service, they have no idea of what is required and what it costs to furnish that service. Just exactly how DO we know what the temperature is going to be tomorrow?
So, while no magic bullet, I certainly see part of the challenge as being that of making the public sector more evident and comprehensible to people, showing the linkages, and explaining the processes. In effect, more clearly demonstrating “value for money”, and value in the collective.
And while on the topic of value for money, I would be remiss in neglecting the perversion of the audit function over the past decade. It never ceases to surprise me just exactly how ill-informed citizens are about the point of public-sector audit. It has become widely viewed as essentially an exercise in whistleblowing. The whole flavour of “Things look pretty good but here’s where you might tighten it up a bit” seems completely lost. That despite what appears to be a continuation of the tradition of government audit. The general malaise and mistrust of government has resulted in each Auditor General report being anticipated as somehow “blowing the lid off” some scandal. When Sheila Fraser ended her term earlier this year, the comments posted on-line made it seem as if Batman had deserted Gotham City and all hope would be lost. This attitude is an extension of the basic sentiment that taxes are largely and consistently wasted. Admittedly, there were a few times where Madame Fraser might have “spiced up” the reports a bit, but the brunt of the damage was done by sensationalistic reporting…often by the public broadcaster too, and not just “right wing tabloid media”.
Certainly honest oversight is necessary, but the constant feeding of the cynicism has not been helpful, and has fostered a culture of blame avoidance, which ultimately can become more of a source of waste than the very waste people hope not to be blamed for. To close this circle, I’ll just say that there are many involved in this particular tango, and everyone is going to have to do their part before taxes become acceptable again.
Finally, I may have mentioned it before, but there is a fascinating and surprisingly (or maybe not) substantial research literature on the psychology of tax compliance. I can recommend the work of Australian researcher Michael Wenzel (though I think Greece may provide an especially interesting arena these days!), but a simple Google search using “psychology of tax compliance tax evasion” will pull up plenty of interest. A common theme is the connection between perceived justice/fairness and tax compliance.
LikeLike
Thanks Mark. Interesting and insightful as always. Of course you are right that there are and always have been important differences in how the two countries view tax, but i have no doubt that ” the no tax is a good tax” eighties helped ramp that sentiment up first there but also, later and to a lesser degree, here. And you are right that it is always a good thing to make more evident the link between taxes and services though most people DO know. Still we should be reminding them often of what excellent returns we all get for our tax dollars. The CCPA has wonderful data on this. Thanks for the research suggestion. The best I have read on this is Bo Rottstein, the Swedish political scientist, who helps us to understand the contagion of tax evasion, and looks at fairness and trust.
LikeLike
An excellent discussion, long overdue…about how we finance a more equitable and prosperous society…….but we also need to look at free market fundamntalism….and a corollory of that ideology, which acts as if exports are the single most important aspect of a thriving economy.
I am so tired of the junk on the market that comes from third world sweat shops…..depressed and frightened when I consider how hard farmers have to work to just keep their heads above water….and the lack of national understanding that local markets are not just for urban elites, but that they used to be a primary engine fueling a sustainable national economy. Now I must tolerate dry peaches from away while someone to the south of us gets the BC fruit….and in the near future, Montsanto and Cargill will dictate what we eat and where it comes from. Goodbye Wheat Board, or any cooperative marketing tool designed to protect local producers….all this is a detriment to the “good society” we are apparantly moving toward….tax free!
Deregulated export markets is an unqualified good apparantly ….any duty at the border , or restrictions on what can be sold in Canada is just regressive protectionism……..standing in the way of global prosperity.
Feeding, clothing and employing your own people first………and trading only the surplus….seems to be a primitive idea whose day is done. But the free lunch of low taxes will soon be offset by the expensive lunch of agri-business junk food. Heck, it already is for the lowest income earners among us.
And this willingness to export quality while letting our fellow citizens eat what Walmart has to offer, is part of the deal we made when we decided we wanted low taxes, and free markets. We have not only become a more callous nation, we seem a little slow logically as well.
Yes…we must begin having this discussion…….we must work to reform a system that impovishes the majority, while defending the right of a small minority to live essentially “tax free” while pigging out on luxuries that in many cases, our planet should not be producing at all.
LikeLike
Wow. You raise a couple of huge issues that I hope to explore soon, especially in light of CETA. And your comments on agribusiness junk food get at one of the most consequential issues we face. Thanks for this Mary.
LikeLike
A fantastic conversation whose time has come. Thank you, Alex, for kicking it off. I found myself muttering “exactly!” to almost every paragraph you’ve written. I was, though, also thinking about my new home, Winnipeg, where municipal taxes (property taxes, etc) have not risen in ages. It has become a political badge of honour, here, to not raise property taxes. On the one hand, the “frozen” taxes here are already some of the highest I have paid anywhere, other “user fees” are creeping into our daily lives and yet services are lacking, and declining compared to other cities I’ve lived in. So, I’m left wondering about the transparency of taxes — both a better understanding by most of us of the incredible value for services we receive, and a better understanding of where there really is fat that can be trimmed from the gravy train.
Mark Hammer’s comments, in particular, resonated with me because they raise two sides of a very important coin:
1) a better understanding of the benefits of taxes – the need for something more than transparency – in fact an accounting (some might even say, marketing) of how our tax dollars are helping us. Let’s face it, while Canadian politicians may not like to talk about tax increases or the need for taxes, Canadian public servants tend not to suggest tooting their own horns by marketing their successes to the recipients of those successes. I strongly believe that most people who begrudge taxes do not make the link in their own minds to what they receive for those fees and we could do much more to help them understand. Or, as you mentioned Alex, they mistakenly fall into the rut of thinking luck only applies to those who aren’t “succeeding” and that those who succeed do it on their own. That thinking is certainly a tougher nut to crack.
2) a better accounting of the taxes – the Auditor General of Canada generally does a very good job of enlightening us when our taxes are spent without success (though this function isn’t nearly as successful at other levels of government) but what follow-up occurs? How does the average taxpayer know that the gaps are being fixed? Unfortunately, the reporting breeds further misunderstanding of taxes (“why should I pay more taxes so those shysters can spend it?”) While we are working to better explain our societal successes through taxes, we also have to find a way to transparently fix the gravy train, in those few instances where it exists, and to communicate how we have fixed it. Without a transparent follow-up on these cases, one bad apple will spoil the bunch.
LikeLike
Thanks Patrick, couldn’t agree more – if government were more transparent on the big issues, more clear about what the taxes buy, more conscious of fairness in both taxes and expenditures, well…
LikeLike
Hi Alex,
Someone forwarded me your article and it really spoke to me because this is the very topic I have been studying in depth for the past 2 years. I completed my undergrad Honours project on understanding the roots of tax protest at Simon Fraser University and am currently going looking at graduate studies to close this knowledge gap Canadians have on their on citizens. My current SSHRC proposal will be titled: “Tax protest, dissent and disobedience: Understanding the root of tax evasion” and I hope they see this topic is necessary for Canadians to understand in order to position itself better as a young nation. With many events in the world and mature economies to learn from, it needs to understand its own people rather than dismiss their protests (either via tax evasion or otherwise) as without merit before larger issues arise. Your touching on Deborah Kolb’s description of social dilemmas really resonates with parts of my initial studies and I hope you could offer suggestions on where to look for more information about the issues in your article.
LikeLike
Thanks May. It’s great that you are pursuing this important topic. In Canada you might look at Canadian Cantre for Policy Alternatives *many fine researchers and studies to draw on) and other economists such as Neil Brooks and Jim Stanford and at the other end of the continuum, you might find interesting Stephen Gordon and Jack Mintz. On the issue of trust and tax avoidance I have found useful Swedish political scientist Bo Rothstein whose work is referenced in an earlier blog here. https://afhimelfarb.wordpress.com/2010/09/17/trust-traps-and-taxes/ Let’s keep in touch.
LikeLike
Thank you for these leads Alex. I will certainly be looking through your old posts for information and will keep you updated on my progress in this field.
LikeLike
Thank you for this perfectly-reasoned and wonderfully-articulate piece. You took literally all of the points I have tried to make in the past when debating the anti-tax crowd and you have offered them up in the straightforward and comprehensible manner which I would never be capable of. I honestly feel this piece is a must-read for all Canadians; it is that informative and that important.
I have long said that I feel the use of the ‘lower taxes’ rallying cry from politicians is a means of pandering to the lowest common denominator. The voter that does not take the time to examine the issues or review his or her candidates’ policies and platforms during the run-up to an election is easy prey for this type of strategy. I honestly believe that Canadians need to be better educated in regards to taxation and the role of government, and I feel that this should be done in our schools. Too few understand the importance of taxation, and see it merely as a burden, all while assuming core services just exist without having to be paid for. Your Tea Party member example illustrated that point perfectly.
Hopefully your message will spread. Once again, thank you for it.
LikeLike
Thank you Tyler for your generous comments and for reminding us of the importance to democracy of early civics education.
LikeLike
Excellent piece. We indeed have a problem when our parties – left, right and center – are afraid to raise the “T” word. Since 1995 Canada has become a low tax regime by OECD standards, and the tax system has become flatter. Andrew Jackson wrote a very good paper of this called “Charity Is Not Enough”. Since the surge in inequality is driven primarily drive the surge in incomes at the top, steeply progressive income taxes and also taxes on wealth are needed.
Jackson also notes however that transfers are more effective in terms of countering inequality at the low end of the income distribution. This is the primary means of countering inequality in the Nordic social democracies.
Taxation as a % of GDP is something like 33% in Canada compared to close to 50% in Scandinavia. The wealthy pay more in income tax, but they also pay more in VATs, payroll taxes, etc. However the tax/transfer system as a whole is more progressive since expenditures benefit those with lower incomes and transfers (basically “negative taxes”) are targeted to the most needy. And there is more gender equality, the lowest Ginis in capitalist countries, etc.
The point is while we need a far more progressive tax system, that alone won’t be enough. Unfortunately as Hugh Mackenzie points out the Canadian Left is under the illusion that high quality public services and a generous welfare state can be financed entirely by “people we don’t know.” Yet this is a concession to the neoliberal view that the incidence of taxation can be somehow separated from the expenditures they fund. As the late Marxist economist Andrew Glyn pointed out in his his last book Capitalism Unleashed, in a typical advanced capitalist country the top 10% of earners receive about 30% of the income and raising the taxation of the top 10% by one third would contribute about 10% to revenue. But even with a far more progressive tax system the welfare state would have to be financed by the bulk of wage and salary earners.
The Nordic social democracies also have – as Gosta Esping-Andersen has shown – the effect of “decommodification” which is as important as progressive taxation in terms of building more egalitarian societies. Public goods are redistributive and also more ecological.
LikeLike
Thanks Mat, for this and for your other work on these issues. I am glad you have brought to our attention these additional references. We agree (and I say) we will all have to carry the burden, or at least the bulk of us, and I agree that public goods is key and have a proven positive rate of return. I wanted to emphasize first that if we don’t change the channel on tax, we cannot even imagine the kinds of public goods that would make us healthier, greener and fairer. Second, that most of us must fund these public goods but taxes shouldbbe very progressive. And third, there is room to increase taxes at the top now and that will help create the frame and context for the right kinds of taxvpolicies down the road.
LikeLike
We absolutely do need to change the channel. It looks like Occupy Wall St./Bay St. is having an impact. Brian Topp has now called for tax increases on the wealthy and is pondering reversing the GST cut. Hopefully he won’t back down from attacks from the Tory spin machine and the media, and hopefully others will follow suit. Still, we’ve got along way to go; Canadians have been subject to 15 years of anti-tax/anti-public sector discourse.
LikeLike
But most definitely a start.
LikeLike
It’s interesting: in the early 19th century as Britain was considering universal sufferage (which meant, of course, universal MALE sufferage) and extending the vote to people who didn’t own land Wellington commented that if they did that “…we will never pay down the national debt”. The man had a point – in a democracy people typically vote the easy way out. Even if it’s not a way out.
You make a good point about no one finding the gravy train. We should re-state that old cliche of “where’s the beef?” to “where’s the gravy?”
LikeLike
Perfect – “where’s the gravy?”. Thanks for this.
LikeLike
Unintended consequences of a low tax & low interest rate regime.When Carney & Flaherty are telling us that our debt to income ratio is 149% & the mortgage banking industry is telling us that real estate prices are 25-30% overvalued then we are in trouble.We smug Canadians are living in a bubble.We are not immune to global events.
LikeLike
Exactly.
LikeLike
Thanks for your comments Dave.
LikeLike
The problem with Boomers is that we live too long & use the greatest amount of medical services in our last 2 years of life.The only good Boomer is a dead Boomer & the sooner we die the better.The last statistics that I saw was that we have one trillion $ in assets which over the next 10-20 years will be passed down to the next generations.There is life after death.
LikeLike
A tad morbid. But we are one of the few countries that has no inheritance tax. In any case, you are not exactly demonstrating the generosity of spirit I was hoping for.
LikeLike
We actually aren’t living all *that* long. Much of the increase in life expectancy comes from reductions in childhood mortality. Those of us who made it through the first dozen years as a consequence of all the “artificial supports” (vaccinations, pasteurized milk, antibiotics, that “newfangled refrigeration of food”) tend to live about as long as we always have, IF we made it past childhood. I’m not yet convinced that my “artificially survived” generation is going to make it out to the 9th decade in the sort of numbers that research on previous cohorts of the oldest old (born before all those newfangled advances, and survived past 5 in spite of their absence) might suggest. Those presently in their 60’s or older are not exactly the most highly selected-for cohort there has ever been. As a species, humans seem to be engineered to live about as long as it takes to produce a 3rd generation (i.e., grandchildren), but anything after that is pure gravy and making wise choices in who your grandparents are.
As to whether all those assets will be passed along to the next geneation, there’s a few sides to that. Certainly, with fewer offspring, each member of “the next generation” stands to inherit more (i.e., a greater share of accumulated family wealth). At the same time, consumer expectations of those in their 3rd age are considerably elevated, relative to previous generations. So after all those cruises, how much will be left for the kids; particularly when you consider how few saving years many people will have left themselves after deferring parenthood until after post-secondary education and *finally* securing decent work? You kind of have to wonder about the the extent to which more people might express greater resentment about taxes precisely *because* of a lack of, or diminuition in, inheritance windfalls. I don’t know about you, but I generally find myself more generous with free money than money it took me time to earn.
LikeLike
Always an interesting and valuable twist Mark. I will just add that the money we earn too owes much to others, including those who preceded us and invested in us and our society, but I take your point.
LikeLike
Is anybody out there adding up the bills?All debt & deficits are about future taxes.We have “entitlements” which of course are a function of the wealth of a country.We have ships,planes,more prisons & prisoners,subsidizing immigrants & subsidizing loser Quebec forever, We are headed towards a trillion $ debt which we cannot afford.to pay.
LikeLike
That is exactly right, Dave. I wish I had said it that simply.
LikeLike
But to be clear, I believe the issue is to pay now, not later.
LikeLike
We got our T4s last week, so my wife started busily plugging things into the software, telling me how much she was going to be getting back. We are traditionally very sluggish about filing our taxes. Not because we resist or resent, but because we always get overtaxed and get big refund cheques back. The absence of penalty makes one lazy in that regard.
We don’t seek tax shelters of any kind, or invest. We just go to work, pay the bills and mortgage, give to charity, and appreciate what our taxes accomplish (well, most of it). But we are taxed at source, so we never have the experience of cutting a cheque to the government.
So that got me thinking about who DOES complain most about taxes, and whether their experience of it, phenomenologically, is different. I may be taxed at the exact same rate as someone else, but if I have to cut that cheque and see that money depart from my hands/account, it probably feels different and I probably resent it more.
I would imagine that many retirees, and small business-people, who are also not taxed at aource, and have to cut that cheque…maybe several times a year…probably feel that resentment.
It’s a little thing, really, but I would imagine that sending that cheque feels a lot more like forfeiting one’s own money than being taxed at source does. And under those circumstances, one probably thinks a lot more about where that money goes and what it does.
LikeLike
These little things no doubt matter. Krugman talks about how many people who receive Medicare or pensions do not see these as “government”. They do not make the link. Medicare services are delivered by private doctors not government workers. I wonder how much direct deposit of pensions has contributed to this delinking. The money comes from the bank somehow. Would it be different if families still got family allowance checks in the mail with a little message from the government?
LikeLike
Hello Alex … and following is my comment:
I also enjoyed your talk at TVO under the topic of Tax. Since I would like to see these thoughts and talks to be interactive rather than a unidirectional, thus may I provide the following comments:
Citizens appreciate and have to pay their taxes to this vast country of Canada. However the government system is broken and the Tax and taxing has become a four letter word. Some of reasons:
*Trust: there a very little trust on government and the way the operate
Accountability: very small accountability can be seen:
*There are unaccounted waists such as (just a few in the recent years):
-G20 –> ~$1.2B
-Revoking Mississauga gas plant –> ~$0.5B
-Purchase of fighter planes
*Cutting back in essential fronts such as schools, libraries, … that may only add up to be few million dollars while waiting in bunches.
*Making the average people to carry such heavy load
*Workers after paying thorough their income taxes, they pay at least 13% more on HST. If they are lucky, they may take 40% of their earnings home!
*Let the cartels (like oil companies) to keep on screwing the users through their monopoly and the support of government
So people are fed-up in such abuses and the broken system. Your/others efforts should be very clear and spent towards fixing the system not justifying that public need to pay their taxes … we have no choice to begin with!
Hope that above can be addressed in your talks as I feel your are sympathizing with peoples’ burden. By the way, you have a very impressive and enhance blog site. Unfortunately it is unidirectional and one can not exchange with you!
Regards;
LikeLike
Very interesting stuff.
I think it’s important to clarify one thing. The NDP commitment to raise corporate taxes didn’t “somewhat” offset HST exemptions, it represented a net increase to government revenue. The proposal was to shift some tax responsibility back on to the corporate sector (after the HST had shifted it onto households) and generate additional revenue.
LikeLike
Thanks.
LikeLike