February 22, 2007

The Cure for Tax Rage

The cure for tax rage
Take a trip to Brazil.

By Chris Arsenault
Published Thursday February 22nd, 2007

It's a common perception south of the border that we Canadians are taxed to death by a pseudo-socialist nanny state.

In the lousy 1992 Tom Selleck movie, Mr. Baseball, the main character is terrified of being moved to Canada due to higher taxes and instead ends up being shipped off to Japan.

And, as call-centre workers, baristas, kitchen staff and office employees trudge off in search of old T4 forms from jobs quit months ago, the idea of paying taxes, especially higher taxes than Americans, may seem unnerving.

Add a well-funded choir of voices like the Canadian Taxpayers Federation and the Fraser Institute screaming about 'tax rage' and one could easily assume that Canadians are taxed to death.

Taxes in Canada, including income tax, GST and corporate taxes, are equal to around 35 per cent of GDP or total national wealth, versus 29 per cent in the United States, according to 2005 figures from Roger Martin, Dean of the Rotman School of Management at the University of Toronto.

However, compared to other industrialized countries in the OECD, Canada's tax rate is about average. In Sweden, a developed economy with world's highest standard of living, taxes are equal to 51 per cent of GDP.

The largest portion of Canadian tax revenue, around 40 per cent, goes to health-care. Studies from Harvard Medical School and the New England Journal of Medicine have proved, despite the best rhetoric from the political right, that public administration is the most efficient method for delivering the service.

Simply put, if you aren't paying for services like health-care vis-a-vis taxes, you are going to be paying more through bureaucratic third party channels like private insurance.

"If you look at the polls, people want services more than tax cuts," says John Jacobs, an economist with the Canadian Center for Policy Alternatives, a left leaning think-tank, in Halifax.

For whatever reason, none of the major think-tanks who deal with taxes, from the left or right, have offices in New Brunswick.

Unfortunately, the least popular taxes often make the best public policy.

The Financial Post recently reported that 71 per cent of Canadians oppose more taxes on gasoline.

If we really want people to drive less, then gasoline needs to be taxed and the excess revenue invested in public transportation.

Economists see taxes as a means to discourage detrimental behaviour and encourage positive social trends.

However, when politics is added into the equation, economic sense is often ignored to save a couple cents.

Take Conservative cuts to the GST. This is a sensible tax designed to limit consumption. Cutting the GST by one per cent was politically palatable with the population, but bad long-term policy.

Since the end of the Trudeau era, successive Federal governments have been unwilling to use tax incentives and disincentives to change structural problems in Canada's economy. Instead, the feds have downloaded spending responsibilities on the provinces and cities without providing corresponding funding increases.

"In 2000 the Government of Canada introduced a five-year tax reduction plan - the largest tax cut in the country's history," according to a 2002 statement from the department of finance. Those cuts were presided over by the Martin Liberals, before the influential Economist magazine dubbed Captain Paul 'Mr. Dithers'.

While the Harper Conservatives try to brand themselves as serious tax cutters, their actions thus far have actually been more progressive on the tax front than their Liberal predecessors. Finance Minister Jim Flaherty had the surprising gumption to take on Bay Street and partially close the income trust loop hole, which allowed major corporations to avoid taxes by simply changing their registration status from a company to an 'income trust', without altering any aspect of their actual business.

Still, as average workers tire of monotonous paper work and make the trek to H&R Block to make tax filing easier (and more expensive) the core debate raging about taxes usually misses the issue's crux.

The best cure for tax rage is democratic public policy. When average citizens can have direct input on where their money is spent, public services, the raison d'Ítre for taxes, feel more public.

In Puerto Alegre, Brazil sixth largest city, local administrators have adopted a 'participatory budget', where citizens can attend community meetings to discuss how significant portions of the city's revenue are spent.

Puerto Alegre as a city has a larger population than New Brunswick, and it's still possible to have direct participation in important affairs.

The participatory budget isn't simply a consultation or an empty 'community form', the event gives people the ability to debate how their money is spent. This form of direct democracy is the best cure for tax rage.

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