Taxes connect us to one another, to the common good, and to the future. This is a book about taxes: who pays what and who gets what. More than that, it's about the role of government, about citizenship and our collective well-being, about the Canada we want. The contributors, leading Canadian practitioners and scholars, explore how taxes have become a political 'no-go zone' and how changes in taxation are changing Canada. They challenge the view that any tax is a bad tax and provide broad directions for fairer and smarter approaches. This is a book that will be of interest to anyone concerned with public policy and public affairs, economics, and political science and to anyone interested in challenging the conventional wisdom that lower taxes and smaller government are the cures to what ails us.
Tax Is Not a Four-letter Word
Alex Himelfarb and Jordan Himelfarb
We do not like paying taxes. This is not big news: we do not 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. What changed?
Americans have always had an uncomfortable relationship with their taxes that probably reflects an historical ambivalence about government. Taxes there have always been a hard sell. Over the last few years, however, the only saleable tax policy has, it seems, been the promise of ever-lower taxes. American ambivalence turned to anger in the aftermath of the financial meltdown and the massive government bailouts. Taxes, always a problem, became an evil. We saw that play out, almost unbelievably, in the extension of the deep Bush tax cuts made by the first Obama administration in the face of trillion-dollar deficits. We were bewildered while watching the first debt ceiling crisis and amazed by the eleventh-hour agreement to cut government services over a trillion dollars while huge tax cuts were extended, including those for the country's millionaires and billionaires. Many of us were dumbfounded by the widespread no-tax pledges among Republican politicians before the 2012 election-no new taxes whatever the circumstances, whatever the need, whatever the consequences. It is as though our neighbours, always able to reinvent themselves, were stuck with the same tune playing over and over again: All taxes are bad. Tax cuts are the magic cure for all that ails.
In Canada, we have traditionally had a more benign view of taxes. Like other northern countries, we have understood that taxes, however irksome, are the price we pay for civilization and a better future, for the privilege of living in Canada and the opportunities that provides. While there are legitimate disputes regarding how much tax and of what sort, we have generally accepted higher taxes as a way of funding valued 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 too, another story, an anti-tax story, has been unfolding. In the 2011 federal election, all 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, Rob Ford was elected mayor in 2010 on the promise of tax cuts and an end to the gravy train (if it can ever be found). In the 2011 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, British Columbia said no to the HST in a referendum on taxes; one wonders what precedent this tax referendum creates. Federally, the Conservative government is continuing a decade-long tradition 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.
Ironically, it is in the anti-tax US 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 part of funding his recovery plan. But even these small and belated steps have produced accusations of class warfare, and alternative proposals to further cut taxes, including those for the very rich. Here in Canada, the tax conversation is pretty constrained; even proposals for modest increases targeting the rich or delayed cuts for corporations meet stiff opposition. Generally, we continue to reward politicians who avoid the issues, or who promise more cuts.
Of course, as many of the chapters in this volume set out, a conversation about taxes is a proxy for much larger issues: the role of government; what should be public and universally available, and what should be private and best left to the market; how best to achieve fairness and efficiency. A discussion about taxes is a discussion about the kind of Canada we want. Without an honest conversation about tax, we might just end up sleepwalking toward a Canada we would never have chosen. We ought to have the conversation, but it is not happening and doesn't appear imminent.
How did we get here? How did tax become a "four-letter word"?
The Last Free Lunch
The late 1970s are a good place to start in order to understand this shift in attitudes. Then and throughout the eighties, free market ideology fully bloomed, first in the US and later and more subtly in Canada in the aftermath of serious economic stagnation and inflation. The economic problems were real and serious, and the times were ripe for an alternative to the progressive (or liberal) policies that had for decades been building the social safety net and progressive state. A number of writers have explored why the liberal establishment failed to make the adjustments to stave off this free market counter-revolution. Too much success? Had they become the establishment, defenders of the status quo? Whatever the reasons, some version of market fundamentalism, variously called neo-liberalism or neo-conservatism, reshaped politics in much of the developed world and particularly in the Anglo democracies. In this volume, York University's Matt Fodor traces the rise of neo-liberalism in Canada and what this has meant for taxes. Eugene Lang and Philip DeMont provide the numbers and discuss the impact of this shift on tax policy in Canada. Trish Hennessy gives an account of how the way we talk and think about taxes and government has changed accordingly. And Frank Graves provides data on the impact neo-liberalism has had on our complex attitudes to taxes and what they buy.
The solution to economic stagnation and inflation, according to neo-liberals, was to let the market do its work and get governments out of the way. The best way to do that: cut off their revenues by cutting taxes. As Milton Friedman, chief architect of US neo-liberalism 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 the pursuit of our individual interests in the market. So began three decades of an unrelenting assault on government, or at least the elevation of the market as the best means for achieving the "common good."
The architects of this counter-revolution were not perfect libertarians. They understood that government had an important role in protecting life, liberty, and property-but once that door was opened, the danger, in their view, was that government would take on too much, "interfere" too much with the allocative efficiency of the market, and to stop this, taxes-public spending-should be kept as low as possible in favour of private spending. In this view, governments had already grown far too big, and too many services were being bought publicly. Governments' role and size would have to be reduced.
But there was a political challenge here: people had become quite wedded to the public goods and services their taxes bought. So how to sell the low-tax, small-government agenda? 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 economic growth that they would pay for themselves. Tax cuts were free-the last free lunch.
This notion that taxes are somehow separate from the services and goods they buy is now a 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 Centre for Policy Alternatives, has contributed two chapters to this volume 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 with the false promise that only waste and inefficiency will be cut. No politician or 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. Of course efficiency matters, waste must be attacked, and of course it matters how both taxes and spending are organized, but despite the highly publicized incidents of misspending that seem to dominate the pages of our mainstream media and disproportionately shape our perceptions, the numbers about waste never add up, and the consequences of tax cuts on public goods and services are always worse than promised.
The exaggerated perceptions of government waste and the parliamentary time spent on the scandal of the day themselves have enduring costs; they...