More information to help you decide if you are a fair tax fighter

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I don’t want important public services cut but I feel like I pay a lot already – maybe too much.
A lot of British Columbians feel the same way. A recent Ipsos Reid poll found that two-thirds of us “disapprove” of the Liberal record on taxes – and probably not because people feel they are under-taxed. This may be because in spite of all the talk about tax cuts since 2001 it feels like we are paying more to get less. In fact, what we have seen is a “tax shift”.
For most of us, the few dollars we may have seen from lower provincial income taxes has been more than eaten up by increases in other costs.There has been a steady trend away from “progressive” income taxes to “regressive” consumption taxes. The result is that upper-income house-holds are the only ones that have seen any real benefit.
“Regressive taxes”? Is that another word for flat tax?
Yes, a flat tax is one where everyone, no matter what their income, pays the same rate. The GST, HST and PST are all flat taxes. Jimmy Pattison pays the same tax on his champagne and caviar as you do on a burger, fries and soft drink. Of course he probably doesn’t get a free refill! Many of the taxes we pay are flat taxes – MSP (Medical Service Plan) premiums for example. Over the last ten years many user fees of all kinds have gone up – including hydro rates, ferry fares and many other government revenue sources. These are all a kind of flat tax since everyone is charged the same no matter their income.These types of taxes take no account of your ability to pay – whether you have trouble just making ends meet or have money to burn. They don’t help make BC a more equal and fair society.
You mention “other revenue sources”. I’ve heard a lot about gaming money recently, is that the sort of thing you are talking about?
That is one of many places the government raises money besides your income tax. Whether you like gambling or not this has become a major source of revenue for the province. And it was supposed to provide funding for non-profit and charitable organizations that are such an important part of our community. Instead, grants have been cut and the percentage going to these social and community groups is much lower than was promised – and what they should be getting. This hurts everyone who benefits from arts programs, sports, foodbanks and other non-governmental social services and the many other valuable things these organizations do in our communities. Other important sources of revenue for the province are transfers from the federal government, royalties on our natural resources and surpluses from crown corporations like BC Hydro.
Going back to flat taxes – don’t they make paying tax less complicated?
You are probably thinking about what it is like completing your personal income tax form every spring. Add this, subtract that, multiply by this percentage or divide by the square root of the number of red ones in a box of Smarties. All those questions about sources of income, types of expenses, where you reside, do you have dependents, spouses or pets. Do you operate a farm, own foreign property, receive dividends from the billions you have stashed in a secret bank account in Lichtenstein?None of these things that can make the process of figuring out your income tax such a headache have anything to do with the tax rate. That is actually the easy part. Even in the old days before most of us did our taxes on the computer Revenue Canada provided simple tax tables all worked out for you. Once you had your taxable income you just ran your finger down the page until you came to the right spot and it told you what your tax amount was. Now, with one of the popular computer programs that final calculation comes up automatically. Or you can still use the handy-dandy old-fashioned tables if you do your taxes with pencil and paper.So no, flat taxes don’t make your life simpler – they just give a big break to those who can easily afford to pay more than the average BC family.
I can see why people with high incomes should pay more than the rest of us, but is it fair that they pay a larger slice of their income?
That is a good question and there are two good reasons. First, they are getting more benefit from all the things our taxes pay for. To understand this, imagine that Jim Balsillie, co-CEO of Research in Motion and worth $5.6 billion, was born on a desert island instead of in southern Ontario. He wouldn’t have gone to taxpayer financed public schools and studied at the taxpayer funded University of Toronto. He couldn’t have hired hundreds of engineers and programmers who also benefited from public education. He wouldn’t have had the benefit of the billions of dollars invested in research and basic science by governments over many decades – even centuries.On his desert island there would be no public electricity grid to power the microwave communication network or recharge the Blackberry devices his company sells. There would be no public roads for him or any of his employees to get to work or to ship his company’s products. There would simply be no market for something like a Blackberry when you can just as easily shout to your neighbour two palm trees down – of scratch a note in the sand with a sharp stick. That is, if you learned to read and write somehow without a public school system.Without strong public services paid for by taxes there simply isn’t any private marketplace to get rich from.The second reason is higher tax rates on high incomes lead to greater equality – and more equal societies are better places to live for everyone. This happens in two ways:

  1. If someone does earn a huge amount of money they pay a good chunk in taxes that can provide better services for all or directly help support those most in need. We could build more affordable housing for those who can’t afford million dollar condos. We could increase pensions for seniors struggling after a lifetime of contributing to BC and Canada. We could help those who are unfortunate enough to be struggling with mental health issues or other challenges.
  2. With higher tax rates there is less reason to demand exorbitant compensation since a large part of it will just be taxed away. It is no coincidence that since right-wing governments started dismantling our progressive income tax system executive salaries have sky-rocketed. The share of income going to the top 1 percent fell after World War II when top tax rates were high.

After the 1970’s when these rates began to fall this trend has been reversed and the share of the very top is back up to where it was in the 1920’s and 1930’s. Just look at Robert Milton, president of Air Canada. In 2009 he got $14.7 million, almost double what he received the year before. When was the last time you had a 100 percent pay raise? And you’ve probably never lost anyone’s luggage.

If you want to know more about how greater income equality creates a better society for everyone – including the better off – click here.

More equality sounds nice but isn’t it the wealthy who create the economic growth we count on?
Although it is an article of faith among tax-cutters that high taxes reduce economic growth there is no evidence this is true – in fact quite the opposite! Looking at tax rates in Canada over the last 50 years, the more recent decades when top tax rates have been slashed have actually been a period of much lower growth. This fact should be troubling to those who continue to push for lower taxes on the wealthy based on unproven theories that don’t seem to correspond to how things work in the real world.In the late 1940’s and early 1950’s , the top marginal tax rate was over 90 percent, yet in real terms the economy grew at an annual rate of 6.2 percent. In the 1950’s and 1960’s, when the top rate was above 80 percent, average annual growth was 5.1 percent. From 1972 to 1981, the top tax rate was reduced again to around 60 percent and growth slipped to 4.2 percent. Since 1981 the top tax rate has been around 50 percent and growth has slowed to just 2.4 percent.Now we wouldn’t claim  that higher taxes on the rich cause economic growth. The point is that there is no solid proof that lower taxes on the rich help the rest of us by stimulating the economy.
But won’t we lose jobs if we raise taxes on corporations?
Just like income taxes on the rich there is also no provable link between corporate tax cuts and job creation. In fact corporate taxes in BC have been dropping for years with no benefit to the province – just higher taxes for ordinary people along with cutbacks to services. That is one reason many people oppose the HST. It shifts between $730 million and $2 billion in taxes away from profitable companies and onto the backs of average BC families.
For example, federal corporate tax rates have fallen from 28 percent in 2000 to 18 percent in 2010. Business investment (in non-residential structures and equipment) as a share of GDP was 12.4 percent in 2000. It was also 12.4 percent in 2009, and on track for the same in 2010.
In the 1960s, the heyday of industrial expansion and economic development in Canada, the federal corporate tax rate was 40 percent. Statistics Canada’s data on business investment starts in 1981. That year the federal corporate tax rate was 36 percent, and business investment represented 11.5 percent of the economy. By 1990 the federal corporate tax had fallen to 28 percent. Business investment had fallen to 10.8 percent.
There are many things that drive business investment practices, and while taxes are a consideration they are not the primary factor in investment decisions. A commitment to this strategy is a costly faith-based proposition.Here are some important reason’s corporate tax cuts are not the way to go:Least Effective Job Creation Measure: According to the nation’s official number crunchers, if you want policy to encourage job creation, cutting corporate taxes is the weakest option (20 cents growth from every dollar of tax cut). Spending on infrastructure has the most impact ($1.50 on every dollar spent). Finance shows spending on income supports for the unemployed and low income Canadians has an equally big pop, and housing initiatives are almost as good ($1.40 for every dollar spent).Little Impact on Investments: Federal corporate tax rates have fallen from 28% in 2000 to 18% in 2010. Business investment (in non-residential structures and equipment) as a share of GDP was 12.4% in 2000. It was also 12.4% in 2009, and on track for the same in 2010.

Pay More Tax to Cut Taxes: The 2009 federal budget shows reducing the general corporate tax rate from 22.12% in 2007 to 18% by January 2010 removed $6.7 billion annually from public coffers, right through the worst of the recession. Cutting the rate further this year, to 16.5% meant another $2.8 billion in foregone revenues annually.
Reducing the federal corporate tax rate to 15% ultimately reduces the size of the public purse by $13.7 billion annually by 2012, according to Finance estimates. Financing this tax cut requires borrowing more money. The average Canadian taxpayer will pay interest on the borrowed money to provide a tax break for profitable corporations.At the same time the BC Liberal government has cut taxes on the largest and most profitable corporations by 36 percent since 2001 and plans a further reduction to just 10 percent. BC’s combined federal/provincial rate is already among the lowest in North America and further reductions planned over the next three years will create the weakest tax rate of the G7 countries, 10 points lower than the U.S. federal rate by 2012.How low will we go? Especially since – as we’ve seen – there is no evidence that low corporate taxes provide any benefit at all. On the other hand, the harm foregone taxes create in cutbacks or increased debt – or both – is clear as day.  In fact all of us are paying for these corporate tax cuts in reduced services and higher taxes on our own limited incomes. With nothing in return but promises of more jobs that never seem to arrive.

But don’t companies just shift the taxes to consumers anyway?
It is funny that the same people who demand corporate tax cuts like to brag about our competitive market system. Well, in a truly free market prices are set by supply and demand. Changes in after-profit taxes should not affect the price to the consumer at all. You can’t have it both ways. The reality is that in some areas companies can raise their prices a little or a lot and get away with it – in really competitive markets they can’t. Life – and economics – is complicated and there are not always easy answers. Sign up for the campaign today. Become a fair tax fighter!
At the same time taxes like the old PST do accomplish at least one important thing. They make sure companies who do business and make profits in BC, but are headquartered in another province or another country make some contribution to BC – and help pay for the public services and infrastructure they depend on to be profitable.