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
