Without a Debate on Taxes, We Risk Sleepwalking into the Future (by Alex and Jordan Himelfarb)
Some months ago, we published a collection of essays designed to promote a discussion of taxes in Canada. The book’s premise is that the current tax conversation is distorted. While we rightly ask of any new policy or program proposal, “what will it cost and how will we pay,” we do not ask of proposed tax cuts, “what will we lose.”
The two-cent GST cut alone costs about $14 billion annually – about half the cost of Old Age Security or the larger part of our defence budget – and it passed with almost no debate or push back.
Five hundred years ago, Machiavelli warned “the prince” not to be too generous lest he have to raise taxes. So in a sense nothing much has changed on that count. Politicians of every stripe have long been wary of the political costs of raising taxes. But something has changed. Taxes are no longer just an irritant; today they have become a political no-go zone, a four-letter word.
Of course, we will always have arguments about how much tax and what mix is best, arguments between those with a restrictive view of the state and those with an expansive one, between those who view redistribution as essential and those who see it as illegitimate.
The danger of our current, distorted conversation is that it sidesteps these debates and allows us to sleepwalk into a future we haven’t chosen.
In the book we do try to counter the view that taxes are simply a burden from which people must be relieved. Simply they are the way we pay for things we have decided to do together because we cannot do them at all or as well alone. Our approach has yielded reactions both positive and negative.
Among the latter are some predictable ideological cranks who see any tax as an illegitimate intrusion in our individual freedoms, or argue that the rich deserve everything they have and the poor deserve their poverty, so why interfere. But others raise a number of serious issues that merit response.
Some claim our approach implies that people are stupid. Canadians know, the argument goes, exactly what they are doing when they vote for tax cuts; they know their taxes buy important things but they want more efficient government and smarter choices, less waste or just less state.
Of course people know that their taxes buy things they value. In fact, data presented in the book indicate that many Canadians would agree to some mix of tax increases to strengthen valued services. But the notion that any of us, in this country, at this time, understands the link between taxes and what they buy with sufficient clarity to make informed decisions – well, that’s either naïve or just plain pandering.
Two successive Parliamentary Budget Officers, whose job it is to know, admit repeatedly that they cannot get the information they need to determine the costs and consequences of tax and spending cuts. So how in the world are we expected to know? And without information about the trade-offs, how do we make informed democratic decisions?
Tax cuts are presented to us as free – with no consequences for the services we value – and who of us is not tempted by the offer of a free lunch. And when a few years later, service cuts follow, as they inevitably do, in order to “rebalance” the budget, it may be hard to see the link between those service cuts and the tax cuts that preceded. This is particularly the case when the cuts are implemented in small increments, slowly starving programs, making them less responsive, less effective, and, as a result, more likely to be cut further.
As for government waste, clearly we see too many shameful and troubling examples in the news. These incidents do a double disservice; besides frittering public funds, they also fuel the false claims that we can pay for tax cuts simply through efficiencies and ending the gravy train.
Of course we should applaud any attempt to reduce costly layers of control in our bureaucracies and to find cheaper, better ways to deliver services. This is hard and important work. Ironically, on these issues we appear to be moving backwards as growing distrust has led to more and more layers of bureaucracy that increase not only costs but the distance between government and citizen. Excessive distrust makes government less effective and less efficient.
But on the issue of taxes, however much the stories of waste may dominate the headlines, the numbers never add up. Tax cuts on the promise of ending the gravy train almost always mean that programs and services are starved or cut. Again, our parliamentary budget officers have compellingly made this case: efficiencies alone won’t get us to our spending targets. There’s never enough gravy to pay for the cuts.
We also often conflate waste with spending we disagree with. Governments inevitably do some things we personally don’t value, and this may lead us to conclude that there’ s always plenty of room to cut taxes. But some of what’s waste to you may be essential to others. More prisons? Stealth jets? Pharmacare? Arts? We are not likely to agree. But we don’t get to disentangle government the way we propose to disentangle cable services or personalize it the way we do our smart phone.
Nor do our tax-funded collective efforts necessarily imply more bureaucracy or “big government”; much of the tax collected is returned in transfers, pensions, employment benefits, child benefits, and much is delivered by non-governmental agencies. For many, the guaranteed annual income holds particular appeal because it reduces the need for big government and bureaucratic authority over who gets what. Taxes are also not solely about revenue. They are also important tools to ensure that we get less of the things we don’t like, say, pollution, carbon emissions, financial speculation, and more of the things we do like, say, social justice and equality of opportunity.
In some respects, the debate about big versus small government is a distraction. We are not going back to the 19th century state when health and education were privileges rather than rights, nor are we going to see the kind of build up of the state the last century brought us. We ought, however, in these uncertain times, to decide what things we should be doing together and what is best left to the individual: What investments do we need to make together to safeguard the commons and the well-being of future generations? What services and service levels do we define as rights of citizenship? How much inequality are we are willing to tolerate? We ought to decide, not drift.
Democracy is all about choosing, collectively, the priorities we believe serve the country best. A commitment to collective action means sometimes putting aside our personal preferences. We can face our major challenges collectively or individually. Tax cuts favour consumer choice over shared citizenship.
The tax debate is often muddied by disagreement about whether taxes have actually gone up or down. As the economy grows so too do tax revenues and spending, which is why many (though not all) prefer to measure tax as a percentage of the economy (GDP). The only good data on this come from StatsCan, in a survey discontinued in 2008. These numbers show a decline in the scale of tax and spending over the last several decades, and international comparisons put us somewhere in the bottom third of rich countries. And using the federal government’s own projections, the scale of federal tax and spending will, over the next years, fall to lows not seen for about seven decades. Even lower if the government follows through on its promised next round of tax cuts, including income splitting and a doubling of the tax-free savings account.
Whether we’re taxed too much or too little is a perennial debate that now needs rebalancing. It’s all well and good to say that many Canadians want smaller government but that means nothing unless that’s based on some understanding of how this will affect our ability to pursue our shared goals. We ought to know what we’re giving up before we celebrate the next round of tax cuts.
What we need now is to restore the tax debate to its rightful place within a larger conversation, which has all but vanished, about the kind of country we want and are willing to pay for.
A shorter version appeared here in the Toronto Star.