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Tuesday, August 20, 2013

It's still time for an adult conversation about taxes

Written with Matt Fodor
In a 2009 article in the  Toronto Star, progressive economist Hugh Mackenzie commented on the "strange debate that separates taxes from the services they pay for."  This is a problem across the political spectrum.  Mackenzie criticized the tendency of the Canadian Left to "[campaign] for better public services as if they can be provided free. Better services won't cost us anything because the higher taxes needed to pay for those services can be paid by people we don't know. People who make a lot more money than we do. Big corporations but not small businesses."

Mackenzie was referring to the British Columbia NDP's campaign against the carbon tax as well as the campaigns against the HST "tax grab" by the NDP in both B.C. and Ontario.   This continues today with the Ontario NDP's opposition to road tolls in the Greater Toronto and Hamilton Area to pay for much needed transit improvements, which eerily echoes Rob Ford’s “war on the car” narrative.

Just this past week, in a truly amazing statement when asked about taxes, this from Tom Mulcair:
Mulcair seemed surprised when he was asked if taxes would go up under an NDP government.
"You’re the first person who’s ever asked me that," he said, adding quickly that they most definitely won't.
"I am categorical on that," he said. “Several provinces are now at the 50 per cent rate. Beyond that, you’re not talking taxation; you’re talking confiscation. And that is never going to be part of my policies, going after more individual taxes. Period. Full stop.”
The Canadian Left, in seeking to justify this and similar stances, will often point to historic left-wing "anti-tax" moments, like the fight against the Poll Tax in the UK in the '80s. But in doing so they take the issue out of the present neo-Liberal context of an ideological campaign against the very idea of taxes. This campaign has been exceptionally successful and has been a critical component underpinning both the appeal of right wing populist ideas (and a major factor in why people support the right and its ideas even against their own seeming class interests) and the growth of rampant, "Gilded Age" levels of social inequality.

On the surface, the "people we don’t know" argument seems appealing.  After all, the Left has long fought for progressive taxation – based on the ability to pay – as a key means of redistribution and raising the revenue to pay for welfare state measures and public investments.  Progressives have rightfully condemned the changes of the tax system over the past two decades that have benefited affluent Canadians.  By increasing taxes on “people we don’t know”, so the argument goes, we can provide "tax relief" to hard-working, middle income Canadians and "everyday families."
This argument is problematic for several reasons.  It underemphasizes the issue of revenue and the devastating impact of tax cuts in Canada, as well as the redistributive power of public spending.   The argument is also contradicted by the experience of the Nordic countries, which have the most advanced welfare states and lowest levels of inequality among OECD countries.

Further, it helps to reinforce the complete illusion that taxes are, in fact, a "burden" upon the "middle class" at all, an illusion that furthers right wing ideological ideas and objectives. It feeds into false 99 per cent fantasies that mislead with the facile notion that social inequality and economic injustices can be rectified exclusively by making "them" (big business, the rich, etc.) pay, while not increasing taxes on, say, a household with $100,000 in annual income (a household that would, one might note, fall well within the parameters of the 99 per cent).

As we will show, this reluctance to confront the socially negative ramifications of tax cuts for the middle class and this capitulation to the notion of taxes as a "burden" upon the middle class, has severely limited the ability of government, of any ideological stripe, to actually implement or re-implement social programs and polices that played a direct role in lessening inequality and its consequences. The "War on Poverty" that governments declared at the height of the post war period of "social compromise" was actually succeeding and it was founded and predicated upon far higher personal income taxes for citizens of all classes.

Also, these ideas underestimate the highly disparate nature of "need" within the so-called 99 per cent. They equate the desire of a household with an income of $100,000 a year to finance the mortgage on a large house, or buy a second car that they feel they "need", with the ability of a family with an income of $35,000 a year to send their kids to "public" summer programs (which are no longer free in most centres), to access increasingly expensive higher education, to have properly government funded daycare, or any number of other programs that would fundamentally alter their lives and social mobility.  These "needs" are highly different morally and ethically.

Over the past two decades, neoliberalism has been consolidated as the economic orthodoxy in Canada, at all levels of government and is now supported by political parties of all stripes.  In order to cultivate popular support for neoliberalism, the positive role of government came under a media and corporate assault.  Public services were demonized as overly generous and bureaucratic; the more efficient private sector could do it better. 

Tax cuts were sold as a means of freeing Canadians of taxes and giving them more money to spend.  Taxes were thus not a positive investment in society but a burden to be avoided. There developed a culture of tax revolt that crossed class and ideological lines.

As Marxist economist Leo Panitch put it:
It also had to do with a tax revolt on the part of the working-class, which starts to see less and less for itself in the welfare state. Respectability leads this segment to increasingly deride that working class we now call the precariat. And many of them opt -- and the unions aren’t able to stop many of them opting (to some extent they’re even complicit in it) -- for the $200 a year they can save by voting for a government that offers them less taxes. A portion of the working-class opts for that. And the left was complicit in it when it opposed, for example, the sales tax. One needed to say and should be saying that Sweden’s value-added tax is 23 per cent. You can't have a welfare state without it.
Jean Chretien and Paul Martin slayed the deficit by massively cutting public spending, and dismantling much of the progressive state that had been built up during the 1960s and 1970s.  They then implemented personal and corporate tax cuts and also slashed the capital gains tax, the single most regressive tax cut in Canadian history.  Tax-cutting has continued under Stephen Harper, who cut the GST by two points, implemented many boutique tax cuts for "middle class families" and continued to cut corporate taxes.  The effect of these tax cuts has been to turn Canada into a more unequal and market-dominated society. 

It is true that the right-wing line that “there aren’t enough rich people, so why bother taxing them?” is a self-serving one that can easily be refuted.  At the same time, we need to recognize that working and middle class Canadians benefit far more from quality public services, paid for by taxation, than from tax cuts.

Tax cuts have also had a devastating impact at the provincial level.  While this is true across Canada, taking the example of the past nearly twenty years of fiscal policy in Ontario, a key component of the Common Sense Revolution of Mike Harris was a 30 per cent personal income tax cut. This cut and its preservation and expansion over the years by both the Tories and Liberals, fundamentally changed Ontario politics.   Once in place, the province could not return to previous levels of spending for health, education, welfare and municipalities, and no major political party has dared to suggest reversing it.

The profound effects that this has had are not widely understood as they have been not only compounded by further tax cuts, personal and otherwise, under the provincial Liberals, but also by the fact that a generation of complete cross-ideological subservience to the underlying concept of tax cuts have led them to become so ingrained  in our political and economic culture that they fundamentally narrow the scope of the possible in terms of redistributive or social program options.
The tax cuts remove at a bare minimum between $12 and 14 billion a year from the coffers of the government of Ontario. This dramatically limits not only attempts to preserve social programs and infrastructure, but basically makes it impossible to expand them in any meaningful sense. It has also led, in Ontario and across the country, to large increases in the structural debt of many provinces, a fact that is significant as it means that more  money is spent servicing the debt every year, essentially meaning that it is spent paying interest to largely foreign financial concerns as opposed to on services for citizens.

In the case of Ontario, for example, the amount spent servicing the debt is $10.6 billion a year, which is greater than what the province spends on any other single program or service, like welfare or transit, other than health and education.

After two decades of tax cutting, both the federal and provincial governments have lost billions of dollars of revenue.  By 2009, tax cuts under both Liberal and Conservative governments since 1995 had deprived the federal treasury of about $50 billion annually.  We need to restore the fiscal capacity of the state to pay for welfare state measures and much needed public investments.  In the current context, calls for "tax relief" -- even if ostensibly from the Left -- are dangerous and wrong. 
The Canadian Centre for Policy Alternatives, in its Alternative Budget noted that raising the top federal income tax rate from 29 per cent to 35 per cent for those earning $250,000 or more would yield about $3 billion annually.  A Financial Transactions Tax would raise $4 billion, while an inheritance tax on very large estates would yield $1.5 billion.   Closing tax loopholes -- including by taxing capital gains at the same rate as wage and salary income and by cracking down on tax havens -- would bring in about $10 billion.  Erin Weir notes that raising the corporate tax rate to 19.5 per cent would raise $7-8 billion; restoring the 22 per cent corporate tax rate would raise $11-12 billion.  All of these are worthy proposals that should be adopted.

Yet we should not be under the illusion that these tax proposals -- or even stiffer ones -- on "people we don’t know" -- would restore the fiscal capacity of the state that has been undermined over two decades of neoliberalism, let alone allow the state to provide "tax relief" to the "middle class or entirely do away with consumption taxes such as the GST.   It has been long understood that consumption taxes are an excellent way of raising revenue, and provide a more steady revenue stream to the treasury than taxation on income, which fluctuates during economic downturns.  According to the Parliamentary Budget Officer, each percentage point cut to the GST costs the federal government $7 billion annually; Harper’s GST cut alone thus costs the federal government $14 billion annually.
Looking in comparative perspective, there is a strong correlation between direct spending and equality; countries with higher taxation are more equal. It is for this reason, that it is important to recognize not only the redistributive function of taxation, but also its role in financing welfare states and providing benefits that fall to low-income and dependent workers.  Taxation as a percentage of GDP in Canada in 2011 was 31 per cent, below the OCED average of 33.8 per cent.  This was far below that of Sweden (44.5  per cent) and Denmark (48.1 per cent), though ahead of the U.S. (25.1 per cent).

As Hugh Mackenzie notes: "Nations that have the most highly developed systems of public services pay for them with all kinds of taxes, including sales taxes and payroll taxes that everyone contributes to because everyone knows there is no such thing as a free lunch."

The Nordic countries of Sweden, Denmark and Norway all have a Value Added Tax (VAT) of around 25%, far higher than the GST/HST, which finances the welfare state.  The Nordic model is notable for its reliance on transfers, which do the heavy lifting in terms of countering inequality.  While personal income taxes are higher than in Canada, they also pay much higher levels of consumption and payroll taxes.  Yet the net impact of the tax-and-transfer system is progressive. Rather massively so. In part, this is for the obvious reason that because the affluent spend more, the net impact of consumption taxes are progressive if they are spent on human need.

Indeed, the redistributive power of public spending -- on healthcare, education, pensions and an array of other public services -- should not be ignored.  A CCPA report, Canada’s Quiet Bargain, found that more than two thirds of Canadian households receive more than 50 per cent of their income in public services, a far better deal than the market and far more than they pay in taxes. This was even more true before the tax-cutting mania of the past two decades.

The taxation of private consumption can fund the provision of public goods (such as parks, public transit, public housing, etc.) that are more ecological than private goods. Furthermore, public goods provision has the effect of decommodification which is as important as progressive taxation in terms of moving toward socialist relations in capitalist societies.

Beyond this there is the basic morality of attempting to put a break on consumption. Whenever one speaks of obviously environmentally or socially beneficial taxes or revenue tools like taxing gas or fuel consumption or whenever one opposes populist campaigns to cut them, some on the left will talk of examples of how "ordinary people" cannot afford to pay them. Even when this is true, there are many other means, such as rebates, to rectify the impact on those who are genuinely harmed by such taxes.

But what they never talk about are the wealthy homeowners who will get gas tax cuts, the reckless or irresponsible users of cars or air conditioning or home heating who will get tax cuts, or the reality that if we wish to alter social behaviour and to change patterns of consumption, taxing behaviour that is environmentally destructive or anti-social in its implications is not regressive at all. It is one of the primary goals of socialist politics to shift society away from the wanton or reckless behaviour of not only corporations, but also the consumerist society that they have manufactured. This is simply impossible in any meaningful way without altering the behaviour of consumers, especially those whose consumption patterns reflect their higher incomes.

The state has a fundamentally important role to play in shifting patterns of behaviour through taxation, and when shifting people out of cars, or encouraging them to consume less gas, electricity, water and other resources, the progressive nature of implementing disincentives is clear. This is even more clear if these taxes and revenue streams are tied directly to social goals like mass transit expansion.

Our consumerist society is highly destructive and the patterns of consumption it has created are both unsustainable and morally wrong given the consequences to the planet and the disparities that exist in consumption globally. It will not be changed by goodwill. Next time anyone proposes blanket tax cuts to home heating or opposes taxing car use, ask yourself about how progressive it really is to give a tax break to heating millionaire's mansions, or to oppose encouraging car pooling or making sure that the person driving that empty SUV might be made to think again if fuel taxes are high.
Cutting consumption taxes on these fronts especially amounts to little more than revenue depleting, environmentally negative proposals  that are boutique policy gifts and handouts to the upper middle and upper classes.

In terms of generating the revenue that will allow for the possibility of real social democratic governance and that will give the state the resources needed to implement a social agenda that will directly benefit the overwhelming majority of citizens, the "progressive" necessity is very clear.
Higher taxes in all forms.

The restoration of the GST to 7 per cent alone would significantly offset the cuts to the public sector. Further increases to the tax are essential components to the improvement and expansion of public services. Transfers to lower-income households must be significantly increased as well.  We should fight for a return to more progressive taxation, and begin with calls for higher taxes on capital and on wealthy individuals.  Given the more inegalitarian income distribution in Canada as compared to the Nordic countries, the progressive income tax needs to play a greater role in the tax mix.  We welcome, for instance, the call by Linda McQuaig and Neil Brooks for combined federal-provincial income tax rates of 60% and 70% on incomes over $500,000 and $2.5 million, as proposed in their book The Trouble With Billionaires.

We would propose the reversal of all income, corporate and sales tax cuts that have been implemented in the last 20 years. We would further propose the expansion of taxes on fossil fuel, natural gas and electricity consumption, as well as on cars and their usage, with an extensive rebate program to offset the impact on actually lower income citizens.  For instance, a progressive carbon tax could be designed so the bottom 50 percent of households would be net beneficiaries, where 80 percent of households would receive at least some credit and the most affluent 20 per cent that have the biggest impact would pay the most.We would also favour revenue generating tools like heavily taxing luxury goods.

Altogether these proposals would generate tens of billions of dollars in extra revenue annually for the government.

We would suggest that this be used to build, to start, a national daycare program, a national housing strategy, free pharmacare, eye care & dental programs through transfers and incentives to the provinces, an anti-poverty strategy, a public transit infrastructure campaign and a transition to a 'green' economy as well as to reassert the state's role in the economy and in social justice in the many other ways that having these resources would allow.

As leftists we can fantasize about a coming revolution that will make taxation unnecessary and wipe away the state altogether.  At the other end we can pretend that relatively minor tax increases on small groups of people or on corporations will solve everything like manna from heaven.

Or we can grow up.

Matt Fodor is a Toronto based writer and academic. He is a Ph.D. candidate in political science at York University.

Michael Laxer is a political activist, a two-time former candidate and former election organizer for the NDP, was a socialist candidate for Toronto City Council in 2010 and is on the executive of the Socialist Party of Ontario.
Photo: flickr/dibytes

Tuesday, August 13, 2013

Want, waste and wealth: The immorality and inefficiency of capitalist food distribution in Canada

It has been both a disturbing and telling couple of weeks in terms of news developments related to food distribution in Canada.

First, at the end of July, a report by researchers at the University of Toronto showed that nearly four million Canadians face what they, as is now commonplace, somewhat euphemistically describe as "food insecurity"; an academic way of saying that these citizens either are not able to buy enough food for themselves or their families or that they are constantly struggling to do so. In the case of Nunavut, where the situation is at its worst, over 50% of households experienced food insecurity, while in both PEI and New Brunswick it was a quarter or more of households.

Jennifer Taylor, head of the PEI Food Security Network, reacted to the island province's embarrassingly high numbers by stating:
It's a social problem. It's not a nutritional problem [but] it has nutritional outcomes...
This is an embarrassment. We have the home of Green Gables, we have beautiful beaches, we have friendly, generous people and we have the most kids — save Nunavut, that's the only place higher — that are possibly going to bed hungry or going the whole day without food. This is a crisis and we need to deal with it.
The consequences of "food insecurity", or put more bluntly, hunger, malnourishment and the stress of trying to get food on the table, is devastating for those families and individuals facing it.  The report's project leader, Dr. Valerie Tarasuk, put it in stark terms:
The impact of this situation on children, families, communities, the health care system and our economy cannot be overstated...The problem is not under control and more effective responses are urgently needed. The cost of inaction is simply too high.
Shortly after the release of this report, came news from Statistics Canada about the rising price of food in Canada between 2007-2012. In the words of Mark Brown of their economic analysis division:
The report showed that prices have increased at a cumulative rate of 19% over the last five years. The report also showed that for Canada, the price of food rose at almost twice the rate of the Consumer Price Index, excluding food.
This is a staggering increase that directly effects the financial well-being of citizens, especially, obviously, lower income households and those on fixed (and always declining versus inflation) social assistance rates. It also clearly adds to the acute problem of "food insecurity" described above.

Finally, a third report released by the Conference Board of Canada on August 8, found, among other troubling environmental conclusions, that as much as 40% of all food in Canada is wasted. This waste is equivalent to as much as $27.7 billion annually.

Put in the context of widespread food insecurity and the rise of prices, this level of waste is truly appalling both socially and morally. It means that not only is food that could feed citizens who are going hungry being wasted on hard-to-believe and disgraceful levels, but such wastage inevitably will be a factor in keeping food prices high, in this case artificially.

The Conference Board, typically and disingenuously given its business bent, puts the onus for the waste on consumers, and calls for greater "education and awareness campaigns". While it is, no doubt, true, that most food waste cumulatively will occur in households, the 40% figure is not an average, it is a total. Any given household, taken individually, will waste far less food than the vast majority of restaurants and supermarkets/food retailers taken individually.

What the numbers really indicate is that food waste is a systemic part of our food distribution system, that it is tied to the quantities in which food is packaged, marketed and sold as well as to standard commercial food practices, like restaurants and diners filling plates with more food, often by far, than a person is likely to finish. The food industry, as a whole, profits greatly from this waste, as it directly impacts supply and demand in ways obviously in its favour and drives up prices.

Further, though, the Conference Board's calls for "education and awareness" are absurd in a society and economic system predicated on the principle of  perpetual over-consumption (in economic terms) socially, with the over-consumption the more pronounced the higher up the economic ladder one climbs, it being basically non-existent at the lower end. Placing the "blame" on households conveniently diverts attention from the profound immorality of what this waste represents. It is an intrinsic part of our capitalist system of "food distribution" and not an incidental one.

The waste embodies the very ethos and underlying driving forces of consumerist capitalism and highlights its moral and economic contradictions as well as how it is basically unsustainable.
Most Canadians are aware that we are living in a dangerous housing bubble which is at best now "cooling", though it shows very real signs of collapsing. This is especially problematic as the housing bubble was essentially engineered by the Federal Government as a form of economic stimulus, and the government, and citizens, are on the hook for it should it collapse.

These actions have also had the, to say the least, morally dubious effect of dramatically driving up housing prices making them less affordable to those with lower incomes, even despite the loosening of mortgage qualification rules until recently. In the long term they have also created conditions in which it is quite likely that many Canadians will be paying mortgages on properties worth significantly less than what they purchased them for. Finally, they have placed many Canadians in a position, though admittedly of their own nominal "free will" in which they have a remarkable net worth on paper, tied up in the value of a house they do not actually yet own, but who in reality are a paycheque or two away from losing everything.

Many are also aware that we have sustained much of Canada's economic "recovery" since 2008 through the extension of credit and the facilitation of a culture of indebtedness that has led to Canadians being in far greater debt than at any other time in their history. This is a credit bubble which is also clearly driven by consumerist forces in the economy backed by the government's and corporate sectors policies around credit. As with all bubbles, it would take a surprisingly small number of initial defaults on mortgages and credit card/line-of-credit debts to set a whole chain reaction of default and rapid economic downturn in motion.

Further, looser credit spurs over-consumption in that people buy things that they otherwise could not afford and may in fact not be able to afford. Cars, more expensive housing, appliances, etc. This is what makes it such a dangerous form of economic "stimulus". The consumption is not based on higher incomes (as we all know incomes are largely stagnating versus inflation) or on direct government spending on infrastructure or social programs that actually puts real money in the pockets of citizens, but rather on making it easier to buy things without having the actual money to do so. This can only, for obvious reasons, go on for so long. It also leaves out entirely the poor and the lower income working class, as they often cannot get credit in any real sense and thus cannot "benefit" from it.

The loosening and over-extension of credit is the worst possible and most corporate friendly "solution" to the diminishing ability of the consumerist society to sustain consumption. It places the "risk" and obligation of the stimulus entirely on the back of the consumer and citizen.

The alarming reports in the food sector very much fit this broader social pattern. We see the growth of "food insecurity" at a time of rapidly rising food costs in a setting of a largely unregulated corporate food industry that has engineered, facilitates and that profits from tremendous social waste.

In a society  that makes a virtual cult out of the disposable, the food sector has not been left behind. From club packs, to encouraging citizens to buy more to "save" (an inherently absurd concept), to the socially created expectation that a "good meal" out means being served more food than we can eat, to retailers stocking shelves with more product than they can sell, the system is designed to create waste on a massive scale.

And as with other sectors of our consumerist economy it is not sustainable environmentally, economically or morally. It needs to be radically reexamined as do its systems of ownership and distribution.