Canada’s Dangerously Distorted Tax Conversation

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

“(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.)

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.

39 Responses to “Canada’s Dangerously Distorted Tax Conversation”
  1. John Harris says:

    Taxes are like exercise; we agree it’s necessary but we can’t agree on when, who should do it and how much or how often. My current concern is the hubristic culture that has grown within CRA. We all have our personal stories of arbitrary treatment by CRA but the CBC’s story on the cheque for Nicolo Rizzuto lifted the curtain on the main stage. As I say, everybody agrees on the need to pay taxes. I just don’t like the way the money’s spent when it gets to Ottawa.

    • himelfarb says:

      I get that but surely you like how a lot of it, in fact most of it, is spent – transfers to provinces for health care, education, social programs, transfers to individuals as help when they lose their job, child benefits, pensions and elderly benefits, support for science, research, infrastructure, innovation, student loans and grants, service for aboriginal people, justice, safety. …. we cannot afford to keep starving these programs and operations and we cannot ignore new and emerging challenges just because we – inevitably – dislike how some of the money is spent

  2. gw says:

    Check out Andrew Nikiforuk’s take on Canada (Harper) as a petro-state… he doesn’t want to be obligated to democracy or the people. Lower their taxes and partner with oil.

  3. Beijing York says:

    Congratulations of the book!

    • himelfarb says:

      Thanks BY. How you doing?

      • Beijing York says:

        I’m well, although the feast and famine roller coaster ride of consulting is often a bit nerve-wracking. They will have to pull me out of a meeting on a gurney before I ever consider retiring 🙂

        I was thinking of you and this recent post/book. I have a habit of taking in the conversations around me when I’m waiting around on a bus ride, a waiting room or whatever. Today I overheard a conversation that just made me feel hopeless in terms of seeing a just approach to governance and economics. This woman next to me was chatting with the receptionist, asking her what her husband did and comparing notes with what her’s did. I guess the job was hauling concrete for one of the largest construction firms in Winnipeg. Anyway, the woman in the waiting room commented that working for a large firm probably meant better pay, or at least that is what made sense to her as she acknowledged. She then went on about government workers, nurses and doctors, and such professionals being the ones that really had earning power. All kind of reasonable observations from my hidden POV.

        Then comes the gut wrenching, how do you change this crap thinking moment. This woman observes that in a way, she’s glad she’s not one of them because they get so much of their money stripped away from taxation. Knock my head with a 2X4 but why should she pity anyone who can afford a home that is twice or trice the value of her own, take vacations that she has never even dreamed of indulging in and by-pass the eroding public education system if their highly taxed salaries were high enough.

        This, in my view, is the result of the horrific journalistic mantra of such news sources as SUN media and many others lately. When those who could most benefit from fair and progressive taxation are manipulated into thinking how horrible taxes are, we truly are screwed.

      • himelfarb says:

        It is truly discouraging. I have stopped reading the comment section in the MSM. On the other hand there are brighter signs too. Yesterday the Business Council of New Brunswick made the case for the need to raise taxes – sales and corporate – arguing that they should have spoken out against the corporate tax cuts earlier and that they have failed to deliver their promised benefits.

  4. Robert White says:

    Canada needs close to full employment to pay for the present spendthrifts immersed in all
    levels of governance. The Corporation of the City of Ottawa borrowed $400 million one week after
    delivering a budget held at 2.5 per cent. Provincial long term debt is dangerously high and so
    is houshold debt across the board. Canadians of most stripes are leveraged beyond an ability
    to fend off increased taxation and the feds just showed the door to about thirty thousand full
    time employed in Ottawa alone. Employment is key to repair of the municipal, provincial, federal
    coffers but without an upturn in the tax base, these coffers will remain depleted undoubtedly.

    Canadian DEBT-TO-GDP ratio is said to be the best in the world bar none. Our growth prospects
    are essentially dependant upon USA markets aside from emerging markets presently being sought after right now by our PM and others. Interest rates are eventually trending upwards
    if we can believe the rhetoric espoused by our esteemed finance minister. Where we will see
    increased investment in our country is anyone’s guess. What is most certain is that ‘taxes’ are most assuredly on the table as opposed to being off topic, as the above article suggests. We are not Americans and we don’t tend to complain like Americans nearing tax time. What is clear is that
    every level of governance will be looking for new ways to increase taxes indirectly through
    hyper-inflation on gasoline and other goods.

    Canadians need to own the issue of the day and discuss it freely without hesitation. Where will the neoliberal academics get their funding from when the policy wonks decide to fund only business programmes instead of arts and social sciences programmes? The trend is to actually do just that. Will we amass prosperity though a flatlined economy and regressive petrodollar taxation via the provincial policies presently being discussed? Will the feds finally come to the conclusion that they must invest much more dramatically? One can only hope for reasoned
    debate and progressive policy in the midst of a collapsing global economy and the ever present prospect of hyper-inflation resulting in fiscal pathology.

    The Greeks gave us the acropolis, metropolis, and the necropolis. This is the cycle of civilization. It’s a stoicastic process of ‘death and taxes’ or ‘life and death’ in essence. That is the ethoes of the end game. Debate is healthy for us at this point of the road.


    • himelfarb says:

      While I disagree with much of this, including your comments on taxes, I fully agree with your bottom line that a commitment to full employment is absolutely key. I hope you read the book Tax is Not a Four-Letter word. I’d be very interested in your views.

      • Robert White says:

        I was raised by the ‘tax man’, Dr. Himelfarb. And you happen to be my first sociology
        professor from back in the day at Carleton. You once stated that if any of your students
        ever needed a job they should contact you. That was back in 1989, Alex. We used to go for smoke breaks outside of the chemistry building and I always told you I was raised by the tax man. You replied that your father was a business man as I recall. Anyhow, I like your blog and I have followed your career, but I’m too financially challenged to be buying books right now. Is “Tax is Not a Four-Letter word” available in the public library in Ottawa
        by any chance? If I can obtain a copy I will most assuredly read the book. After all, I was
        raised by the god damn tax man, eh.


      • himelfarb says:

        Nice to reconnect. Sorry to hear that you’re strapped. I sure hope the library carries the book. By the way, I’ve long since stopped smoking. You? In any case, your comments underscore the importance of jobs for the many, paying a living wage, rather than wealth for the few. Thanks for your comments Robert.

  5. Robert White says:

    Regressive taxation on cigarettes (neo-liberal McGuinty) forced me to opt for aboriginal
    made in CANADA ‘Contraband’ brands. I’m a graduate of the George Burns School of Smoking
    if that is any clue as to my will to quit. I started when I was nine years old in Toronto. Used to go down to the Don River and smoke stolen smokes from the A&P whilst sitting under the train
    tressel at Sheppard and Leslie St. Those were the days, man! 😉

    p.s. I’ll check the library.


    • himelfarb says:

      Let me know what you think

      • Merrill Smith says:

        I just checked the Ottawa Public Library website and they don’t recognize Himelfarb (several responses to Himmelfarb though), so I guess we’ll have to work on them. We also need to work on our politicians and media to get the message across that you get what you pay for in government as much as in shopping.

      • himelfarb says:

        Thanks Merrill, sort of sad about the Ottawa library but I totally agree that we get what we pay for and that goes for the kind of future we want to build.

  6. mik1999 says:

    We need a legitimate third part in Canada that is willing to raise issues that may be politically impossible in the short term but achievable in the medium term if the ground is properly tilled. The NDP used to do this, when they had no prospect of forming government. They are scared to do so now

    • himelfarb says:

      That’s an interesting observation. The CCF and to a lesser extent the NDP always had to manage the tension between electoral goals – winning – and educational/ policy goals of moving the agenda. Unquestionably they have been more successful at moving the agenda than at winning, at least federally. Now the three major parties are focused on winning.

  7. Mark Hammer says:

    You have to wonder if attempting to change attitudes would yield an outcome similar to having provided more services for higher taxes over multiple generations. Could any nation “become Sweden” by conscious choice, and how long would that take to achieve? That’s not a reason to throw up one’s hands in despair, but one *does* have to be realistic about expectations and time frame. That, in turn, begets the question of what one needs to do to both sustain interest in moving in that direction (particularly if it takes a while), and what one needs to do to stave off cynicism. As you note yourself, “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.”. Clearly, motivating persistence will be tough slogging.

    I often wonder if the documented rise in adolescent employment in the late 70’s is a partial cause of the scenario we now face. Once the fast-food and service sector kicked into higher gear at that point in history, we had several subsequent generations of young people who started out with a lot of disposable income (largely because mom and dad bought the milk and toilet paper), developed unreasonably high consumer expectations, then moved into “the real world” where things like school loans, tuition, and taxes were perceived as obstacles to fulfilling those consumer expectations. I’m not ranting about “kids today are spoiled”. Rather, recent labour and economic history has placed a big chunk of the electorate in a position where consumer opportunity earlier in life is in HUGE contrast to consumer possibilities in adulthood, and taxes are seen as partly to blame for that contrast.

    In those nations where post-secondary education is publicly provided, but contingent on very high academic performance, we tend not to see quite as much wholesale participation in the labour force by young people, in tandem with their secondary school. I’m told that the expression “4 pass, 5 fail” (referring to the number of hours of sleep you can permit yourself when prepping for college entrance exams) is popular in South Korea. I’m curious about attitudes towards taxes in those nations where young people have NOT had the same history of disposable income that they have had in North America, these last 35 years.

    • himelfarb says:

      Young people have grown up in a world where government was backing away from them, tuition keeps rising, the job market is increasingly precarious, and it sure looks like collectively they won’t have it as good as we did. As Greg Fingas recently wrote it will be hard to convince Canadians to pay taxes without a pretty dramatic change in how we govern, a change that closes the gap between governed and governors, that is focused on human well being and the natural world. At the same time will be hard to imagine such wholesale change if we are afraid to consider taxes. That’ seems to be where we are but there are positive signs.

      The Governor of Missouri vetoed his legislatures tax cuts arguing that they were an assault on vital services, health and education. He seems to be doing quite well. A taxing progressive is running for mayor of New York and seems to be doing quite well. Anti- tax California voted in tax increases. McGuinty won an election after introducing the HST. Last week the Business Council of New Brunswick urged the government to raise taxes including corporate taxes. Yes, the Business Council.

      Some lessons to be learned here. Sooner or later we wake up to the costs of tax cuts and their failure to deliver the promised benefits. Leadership matters. Some will never be convinced but many will.

      • Mark Hammer says:

        These are positive signs that you note. I can only hope they reflect a more profound change in perspective, and not simply a flavour of the month. Clearly, the ball is in the court of those who have been able to persuade of the virtues and advantages of delivering the state more resources to do the common good they strive for. It’s now up to them to deliver on that promise and validate that trust.

  8. Dave Suitcase says:

    Since 1949 when I was born taxes have risen…new taxes have been imposed…billions of dollars have been snatched from the hands of every Canadian thro a vast array of taxation.

    Lets look at what we get for the dollars we pour into Fed and Prov. accounts.
    1. A fully armed and uncontrolled police force…withthe carte blanch

  9. Ian says:

    Is there anyone in the Canadian universe that will argue for a more progressive taxation system these days? Is there anyone in the Canadian universe that will say that the reduction of the GST from seven to five percent was idiotic? Is there anyone who will make a stand for ordinary citizens?

    Apparently not. Most corporate players have gone all in with the reality of everyone being consumer slaves. So I tell my kids that the government, corporations and academia are screwing them because of what? Personal greed? Corporate greed? Simple human stupidity.?

    • himelfarb says:

      Or a stunted political imagination? Dead ideas live on as zombies because the new ideas are not yet born?

      • Ian says:

        Chris Hedges wrote in his book ‘The Death of the Liberal Class’ that Saint Augustine said: “Hope has two beautiful daughters, Anger and Courage.”

        I think we must gain an intimate knowledge of Anger before we can appreciate the beauty of Courage.

      • Ian says:

        Alex, I read your 2010 ‘anger management” post, and it appears you’ve already thought this through.

        As you say, there is no real political progressive voice that deals with populist anger, and the far right will milk that fact as much as they can in order to maintain power. The far right will use this political power to support their corporate sponsors in their efforts to impoverish and control the citizenry while making profits and destroying human civilization (and, possibly, the human species, along with many other species).

        Anger can be a negative force, but, more importantly, it can also be harnessed as a positive force for change. As you suggest, real change will probably happen outside of the political sphere, in a myriad of communities. We’ve got to accentuate the positive anger in society. And transform that anger into the courage to make real change.

      • himelfarb says:

        Thanks for this Ian. You might want to read Bill Moyer’s Cool Anger, an excellent book on this issue.

      • Ian says:

        It’s just another Friday night at Fox’s minstrel show..

  10. Mark Hammer says:

    Just finished reading the synopsis article in Canadian Government Executive (I like to see how the other 5% think), which can be viewed here: Nice summary of the arguments, that I gather are articulated in more leisurely and detailed fashion in the book.

    I particularly like the insight that we now have a generation of folks in their 40’s, who might consider themselves to be tax veterans of a system that, at least for them, has “always been there”, but who actually came of age in a specific era that was the product of a specific zeitgeist of economic theory and economic circumstances. I suppose the first victim of generational narcissism is amnesia about history.

    Kind of fitting that an article which notes the manner in which citizens are all-too-often seduced by “tax cuts” as a shiny distracting object dangled in front of them, ends on a page where a property-management company dangles a “free iPad Mini” as a bonus for signing a 12-month lease. Nothing against the property-management company; it’s just kind of poetic irony.

    Kudos to CGE for printing it.

  11. Mark Hammer says:

    Stumbled onto this yesterday. You may find it interesting. Any book that begins with a discussion of Michael Bloomberg’d attempt to outlaw 32oz Big Gulps as public policy, and Buenos Aires bylaw that removes salt shakers from restaurant tables, certainly garners MY attention.

  12. Lynn says:

    Happy Hanukkah Alex!

    In a recent Wired article I read an interview with an author who is now on my reading wish list for 2014.

    Vaclav Smil seems to identify the root cause (*and dare I say solution) of so many huge problems.

    I found it especially interesting the interconnection to societies with inequality lacking in innovation and economies that are missing key manufacturing industries. Enjoy!


  13. Ian says:

    Anyone who’s ever had a heart, would never turn around and break it.
    Anyone who’s ever played a part, would never turn around and hate it.

  14. Allan Madan says:

    Great post The Canadian government is so stingy with taxes being a tax accountant each year new loopholes are closed making it harder for me to save my clients taxes. The problem will always be this, the Government wants your money and wills top at nothing to get it. No matter what politicians say ultimately the country can’t survive without taxes which is why they remain high.

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