Video: Stephen Harper raises taxes

I was playing around with my video editing software last night and made this video. I worried it was a little unfair and wasn't sure I'd post it. Then I saw the new Conservative ads today and thought, what the heck...

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In a battle of populism vs. the experts, the people always win

I've been planning to write about populism vs. experts on taxes for a few days, but with the release yesterday of stunning numbers from Abacus Data on Canadians’ lack of support for corporate tax cuts, the case is bolstered even further.

An interesting battle has been shaping up between the Liberals and Conservatives on the issue of planned cuts to corporate taxes. In essence, here are the battle lines:

The Conservatives want to continue the cuts, saying they’re necessary to spur job creation and make Canadian businesses competitive.

The Liberals want to cancel the planned cuts (and raise the rates back to the current 2010 level after they’re cut further in the coming fiscal year), saying they’re already plenty competitive, and, with a huge deficit, we could better spend scarce resources on priorities such as home care and education.

What I’ve found interesting about this debate is that while the Liberals have adopted a populist track (we want to help you, not big business) the Conservatives are relying on experts to make their “job creators” argument, trotting out economists to discuss economic theory and productivity gains.

It’s an interesting contrast to the 2005/05 election campaign, when the Conservatives campaigned on reversing Liberal income tax cuts (raising personal income taxes for the lowest-income Canadians) to finance their GST cut. It was a policy nearly every economist and expert would tell you was ass-backward. The Liberals tried to argue the economic theory. The Conservatives ignored them; they knew that whatever the experts said, the people would buy into a sales tax cut no matter how they paid for it. And populism trumped the experts and the theory.

When I read columns earlier in the week where pundits said the Liberals were crazy to be taking this track when all these experts said corporate tax cuts are the bees knees, I just smiled and remembered back to 05/06.

And it would seem I read the mood of the people right, according to the study Abacus Data released yesterday. 57 per cent of Canadians most identified with the opposition parties’ position opposing the corporate tax cuts, 21 per cent with the Conservatives, and 21 per cent identified with neither. The opposition carried the day in all age groups, both genders, and across Canada. Even 26 per cent of Conservative supporters disagreed with the government.

When asked if they supported or opposed the Conservative plan to continue with corporate tax cuts, 52 per cent strongly or somewhat opposed it, while just 26 per cent somewhat or strongly supported it. 22 per cent said neither.

So, suffice to say the Conservatives have their work cut out for them, which explains their cross-country panicky full-court-press this week, sending the cabinet out to stump for cuts that studies say will be of most benefit to the big banks.

The framing of this issue is also interesting in another sense. As a Liberal, I’m not opposed to the theory of corporate tax cuts. So, while I think things like Mintz’s study greatly exaggerate the impact of corporate tax cuts, I do believe competitive corporate tax rates are an important part of a competitive economic climate. So I see no reason to debate the experts on the basic theory; just their spin.

The issue for the Liberals is that our corporate taxes are already extremely low. When we were in surplus, the Liberals pursued a balanced agenda of personal and corporate income tax cuts and program investment. But with a deficit of over $50 billion, we need to set priorities. And we think family home care, education, and pensions are all more pressing priorities than yet another corporate tax cut.

Now, this is more nuance than I’d ever hope to see in the soundbite-driven era of modern politics, but the point should also be made that corporate tax rates are not the be all, end all of creating a competitive business environment and fostering job growth. And many of the Liberal proposals, from education to home care, do help to create a more competitive climate for business investment. I wrote about this in November, in a piece called Seeing the forest for the corporate tax cuts. It would be nice to see some of the expert analysis look at ALL the factors that both reduce cost of business and create a climate for businesses to invest and grow.

But in the mean time, in a battle of populism vs. experts, never bet against the people.

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Jim Flaherty muses about increasing taxes

As part of the Conservative government's plan to try to convince Canadians that we should spend money we don't have to give big corporations tax breaks, instead of investing in ordinary Canadians, finance minister Jim Flaherty had a press conference this morning.

Postmedia journalist Andrew Mayeda was there, and he shares this excerpt from Flaherty's response to a question if the Conservative government would ever consider a tax increase down the road. I've boldedthe relevant portion.

"Our plan actually is to continue to reduce taxes over time in Canada. We've reduced business taxes significantly, and our plan continues in that regard. We've reduced the federal consumption tax, the GST, as we promised we would ... We've done some tax reductions on personal income taxes. Quite frankly, we'd like to do more over time, so that's the direction we want to go. What we're seeing in the economy is moderate growth. It's not dramatic, but it is steady. And we expect that to continue over the medium term. You know, given what we've all been through around the world in the last few years, I would never presume to say 'never' in terms of a very substantial economic shock where we'd have to have one. And there are risks in the world, with respect to Europe, with respect to relative weakness in the U.S. economy, with respect to some global imbalances that I'm sure we'll be talking about at the world economic forum (in Davos, Switzerland) the next few days. That's not the expectation. The expectation is that we'll have continued moderate economic growth and continued tax reductions over time."

Now, let me say first that, as a realistic and reasonable person, I think this is a perfectly acceptable and realistic answer. We don't know what the future may hold. Making definitive statements on hypotheticals is a fool's game. You can tell someone what you know they want to hear, but it wouldn't be honest. It's entirely possible that a scenario could arise where, to maintain programs, a tax increase may need to be considered.

So I think Flaherty's answer, which I'd sum up as "we're not planning to and we don't want to, but I won't say never ever," is the correct one.

But here's the thing. A few years ago Liberal leader Michael Ignatieff was asked a similar sort of hypothetical. In short, the question was if the sky is falling and you had a massive deficit, would you maybe consider a tax increase? His answer, like Flaherty's, was that that wouldn't be his first choice, it's not his plan, but he wouldn't rule anything out.

And the Conservatives have been dining out on that answer ever since. In their most recent round of attack ads, once focused entirely on taxes, centred around a quote form Ignatieff that he won't take a tax increase "off the table."

So would it now be fair to see ads on how Jim Flaherty is going to raise your taxes, or is the sauce not as good for the goose as it is for the gander?

I look forward to the creative and entertaining rationalizations on how the Ignatieff and Flaherty situations are completely different. Don't disappoint me, friends.

UPDATE: In the interest of fairness, I should say that Mayeda reports Flaherty's office is crying, surprise surprise, that he was "misinterpeted." Reports Mayeda:

In an email, a spokesman for Flaherty said the minister meant that he would never rule out another big economic shock. I suppose it depends on how you interpret the word "one," which I took to stand for "tax hike." But fair enough.

Mark me down as unconvinced. The question was about ruling out a tax increase. Flaherty posited the hypothetical of another economic shock, and said he wouldn't rule it out. Look at the main line here again:

You know, given what we've all been through around the world in the last few years, I would never presume to say 'never' in terms of a very substantial economic shock where we'd have to have one.

Now, it seems pretty clear to me that by "have one" Flaherty means a tax increase. But he now wants us to believe one means economic shock.

Tell me, which sentence makes more sense?

A) I would never presume to say 'never' in terms of a very substantial economic shock where we'd have to have an economic shock.

B) I would never presume to say 'never' in terms of a very substantial economic shock where we'd have to have a tax increase.

Yeah, I'm not buying Jim. You had a moment of honesty. Own it. Don't piss on my trouser and tell me it's raising.

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New Liberal contrast ads

The Liberals released two pointed and focused contrast ads this morning, returning the Conservative personal attacks with issue-based critiques. I'll told you should be seeing these ads on TV as we speak. More to come soon, I need to shower, shave and get off to work. For now, here are the ads.

And if you want to see these ads get more air time, click here and make a donation today.

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Seeing the forest for the corporate tax cuts

It seems the business lobby and the Conservative government are gearing-up for a vocal and prominent campaign against the Liberal promise to reverse the planned billions of dollars in corporate tax cuts by the Conservatives, promising instead to invest the money in key priorities such as health, education and home care, saying we just can't afford corporate tax cuts right now.

The business lobby is planning an ad campaign to attack any reversal of the tax cuts, brandishing the usual fear-mongery cudgel of competitiveness and job loses, messaging echoed by the Conservatives. And with the need for simple messaging in mind, the Liberals are presenting it as a simple choice: tax cuts for businesses or investment in home care, education and pensions?

Really, though, while I don’t expect the Conservatives to change course, it’s somewhat more disconcerting (but not surprising) that the business community can’t see the forest for the trees, here. Sure, what business wouldn’t like to pay less taxes? What individual wouldn't? But the fact is businesses would also benefit from the investments the Liberals are promising to make with these limited resources.

It’s worth noting first that, in fact, Canada’s corporate taxes are already incredibly competitive with our primary competitors and nearest neighbours: The United States. There’s no driving need bring them down further right away to correct some paralyzing imbalance. Sure, it’d be great if everyone could pay less taxes. But taxes pay for things, we have a significant deficit, and this is money that, right now, could be better utilized elsewhere.

And what the business lobby doesn’t like to tell us, because it doesn’t support their natural goal of getting more and more for their members, is that making an apples to apples comparison on tax rates between jurisdictions such as Canada and the U.S. doesn’t make sense.

There are a lot of other factors that make it cheaper and more competitive to do business in Canada, the biggest one being our public health care system. Companies in the U.S. need to spend a lot of money subsidizing health care for their employees to attract top talent. In Canada, they don’t. Health care is a huge cost of business for American businesses. I visited one large technology company in the U.S. that even built a medical clinic on its sprawling campus for its employees.

It’s short-sighted to focus just on tax rates. The fact is, our taxes pay for services that contribute to a happier, healthier, more well-educated and, therefore, more productive workforce, all of which benefits the corporate bottom line.

And if you look at where the Liberals want to spend that money the Conservatives just want to shove out the door as tax breaks for business in a time of deficit, the fact is businesses, as well as Canadians as a whole, stand to benefit more from the Liberal plan.

Take the planned Liberal investments to expand paid home care. Currently, people need to burn through their vacation time to care for a loved one, and then either take unpaid leave (if their company will let them) or come back to work stressed, frustrated and unproductive. Some companies offer paid compassionate leave for employees. This program would remove that necessity, and supports employees through a difficult period until they can return to work sad about their loss, but secure in their job.

The other two Liberal priorities? Strengthening and protecting the pension system will make employees feel more confident and secure about their retirement plans and lessen the pressure for employers to step-in with expensive employer-funded plans they can no longer afford to support.

And the benefit for businesses from investments in early-learning and childcare and post-secondary education is obvious. No business can be successful without a large pool of well-educated, talented workers. Tax rates are important too, but a business isn’t going to invest in a jurisdiction if there isn’t a large pool of people with the education and skills they need. Learning is critical, from childhood right through post-secondary.

On a simple messaging question – a choice between corporate tax cuts or home care, pensions and education – I think I know on which side most Canadians will come down. And I also think that, despite what the business lobby might say, many businesses (and let’s remember, most Canadian businesses are actually small businesses) will come down on that same side too.

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Stephen Harper's job-killing tax hike will cost you $223

While Stephen Harper's Conservatives continue to try to twist Michael Ignatieff's words out of context and meaning to make you think he *might* one day raise taxes, his Conservative government ACTUALLY IS raising taxes. From higher airport security fees, to pulling funding for policing at airports (because we should have to pay a user fee for police protection, right?), to the most egregious example of all: his $525 tax hike on jobs:

Canada's budget watchdog says employment insurance premiums are going up, and by a lot.

The parliamentary budget office estimates that EI premiums paid by workers and employers will need to rise by the maximum allowable limit of 15 cents per $100 of insurable earnings to return the fund to near balance in five years.

That would hike annual contributions per worker by $535 — with about $223 more being paid by the employee and $312 by the employer.

Yes, that means you will be paying another $223 off your pay check to the feds every year, while your employer will be on the hook for another $312. What better way to ensure the economic recovery than a tax hike that will discourage employers from creating new jobs by making it more expensive for them to do so?

Yes, it's Stephen Harper's latest tax increase.

It seems he's the one that's just not worth the risk.

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Hurricane Helena and the taxing trials of travelling by air

First of all, if I had done what Conservative cabinet minister Helena Guergis did at that Charlottetown airport, particularly trying to break down a security door, I’d have been arrested. And there’s a better than decent chance her husband would have been tased by overzealous airport security. Her behaviour was unacceptable, full stop.

I think there will be plenty of commentary on her behaviour though, so I’d like to instead segue into airport security. It’s useful though that news of the incident came on the day her cabinet colleagues were announcing a hike of airport security fees – Stephen Harper calls it an “air tax” – because not only does it call attention to the plight of air travel in this country today, it also helps bring the stupidity home to folks at the cabinet table, like Guergis, who are in a position to do something about it.

One wonders if we grounded the Challenger fleet tomorrow and forced them all to fly commercial – heck, maybe in economy – and get a taste of what we plebes have to put up with, how long the cabinet would wait before bringing some sanity to our airport security regime.

I was amused, reading the anonymous letter from the Charlottetown Airport employees detailing Hurricane Helena’s behaviour, about her frustration with the trials of airport security. She refused to remove her blazer, or her shoes when told they might set off the detector. When she did set it off, she “huffily” removed her boots and “slammed” them in the bin, then complained about not wanting to walk around in “sock feet.”

She also tried to drag oversized suitcases onboard, and huffed when she was told they’d have to be checked. It’s rich because, flying to the U.S., the Harper government sharply limited carry-on baggage post-Christmas attack to the point where we were questioning if books were kosher, all because the government didn’t want to hire more security staff to do the hand-screening demanded by the over-reacting American government.

Welcome to Canada circa 2010. This, Ms. Guergis, is what the asinine security rules imposed by your government (and, to be fair, the previous Liberal administration post 9/11) have made of air travel in this country. It’s good that she got a dollop of what those abstract decisions at the cabinet table have become in implementation.

Showing-up 15 minutes before your flight is crazy, and, indeed, were it anyone else but a “VIP” they’d have turned her away from the check-in desk. Domestically, you need to be at the gate 20 minutes before departure, and with bags 30 minutes, or even if the plane is there still you’re not getting on. They recommend an hour, and I usually show up closer to two, just to be safe (and enjoy some lounge time).

But we shouldn’t need to allocate as much time for security now as we currently do. I haven’t flown to the U.S. since last year, my first work trip of 2010 is to Santa Monica in March and I’m dreading the heightened post-Christmas attack security already. I’ve already resigned myself that my days of not checking my rollaboard (and not having to wait for baggage claim) are over.

I flew domestically in January though, and it has gotten even more ridiculous. I fly regularly so I know the drill and have the procedure down to a grim science: coat and sweater off and in bin, belt off, laptop in separate bin, no metal in my pockets. No liquids or gels, I'll buy toothpaste there and expensive water post-security. I’m still four people back in line when I have everything off and ready for the bins. Yet still, both ways, I set off the metal detector, which meant sitting down, shoes off, full patdown and bag check. And what set the detector off? Literally the (small) button of my jeans.

Needless to say, everyone was pinging the detector. One has to ask, how is any of this making anyone safer? The answer is it’s not. I could go on at length but a recent Maclean’s article, “The scary truth about airport security” does it well enough.

And now, with a doubling of the airport security tax by the Conservatives (don’t tell me it’s not a tax, Stephen Harper agrees with me) we see John Biard, Harper and, yes, Guergis doubling-down on a stupid strategy that is designed only to make us feel safer, not to actually make us safer. Rather than trying to fix things, the government is giving us sound and fury, signifying nothing. Any system that makes a pilot surrender his nail clippers but doesn’t screen the baggage staff at all is asinine. The pilot doesn’t need nail clippers to cause serious damage, does he?

It’s time we got serious about reforming airline security in this country (at least for domestic travel, though we should pressure the U.S. to smarten the hell up for transborder traffic, because this is an international issue) and we can start by dumping the Harper security tax hike.

And if it takes Hurricane Helena to get the government to see what it hath wrought, then we’ll owe the good folks of PEI an ‘atta boy.

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What do Gerard Kennedy and The Fraser Institute have in common?

What do Gerard Kennedy and The Fraser Institute have in common? They both want to have a conversation about raising the GST.

To be fair, that’s probably about all they agree on. For example, I don’t think the PMO is preparing an attack piece against their think tank friends like they did on Kennedy. But they do both raise interesting points worth considering.

A couple of weeks ago Kennedy raised the issue in a press conference, saying that a growing chorus of experts say a sales tax increase to help tackle the deficit should be discussed:

Leading economists, former Finance officials and Parliamentary Budget Officer Kevin Page have all said sales tax increases are required to balance the books. It has not gone unnoticed among some Liberals that in Britain, the Conservative opposition is leading the polls and winning praise for "authenticity" after proposing specific deficit-fighting measures that include some tax increases.

"I think we do need to talk about it," Mr. Kennedy said yesterday in an interview with The Globe and Mail.

"I do think we need to talk about a fiscal plan. That debate is internal to the Liberal Party now and I'm not pronouncing on it."

Gerard appeared to be freelancing a little ahead of party policy here, as the Liberal powers that be quickly made clear. And the Conservatives wasted no time heading to the attack. They likely won’t be attacking their ideological cousins at the Fraser Institute, who came out in a recent National Post op/ed in favour of increasing the GST:

For the next several years Canada will be hamstrung by deficits that will hinder any improvement in Canada’s competitiveness, especially on the tax front. However, increasing the GST would create the revenue needed to reduce other, more damaging taxes (i.e. those on income and capital gains) that would dramatically improve Canada’s competitiveness.

I disagree with the Fraser Institute (probably Gerard does too) that we should use increased GST revenues to lower other taxes while making massive cuts to government spending. I don’t think the budget can be balanced on their rosy timeline (not without the massive structural cuts they want and I don’t) so we need that GST revenue to balance the books and preserve core programs. Still, we are agreed that a sales tax increase should be a legitimate topic of discussion for dealing with the current economic situation.

And were we in rosier times I’d actually find more agreement with the Fraser Institute on swapping income tax revenue for sales tax revenue. Long-term, cutting income tax makes sense. Heck, their op/ed is basically a validation of the Liberal taxation policy of Jean Chretien and Paul Martin, who favoured income tax cuts once the budget was balanced and introduced the largest personal tax cuts in Canadian history. And the Fraser Institute op/ed is also a condemnation of Conservative economic policy, as it was the Harper Conservatives that raised income taxes (by cancelling planned Liberal cuts) to pay for their GST cut.

Anyway, we’re getting signals now that the Conservative budget coming in a few weeks, despite the vitally necessary prorogation, will largely stay the course with no major program spending cuts, no tax changes, basically nothing new. Basically they’re continuing with their “we’ll balance the budget by magic” plan.

That’s not good enough, and Canadians know it. Unfortunately, the Liberals have thus far opted for the magic approach to budgeting as well, wanting I suppose the Conservatives to show their cards first and also not wanting, I’d imagine, to set themselves up for easy attacks.

Well, it’s coming to put-up or shut-up time, and it may be time for one of those mythical “adult conversations.” It’s time to start having an honest conversation with Canadians about how we see the fiscal situation shaking-out in the next five to 10 years, how we’re going to get back to balance, and what the choices are going to be that we’ll have to make. And magic won’t be part of the equation.

Myself, I think we should consider a sales tax increase if we can tie it to preserving specific core services (or new ones, such as early learning and child care). Polling shows Canadians will support taxes if the revenue goes to services they value and think are important.

We need to lay-out a timeline for returning to surplus. And I don’t think it needs to be overnight. I want us balanced but we shouldn’t slash and burn to get there. We should chart a course that makes an argument for preserving important programs and even investing in new priorities (because we can’t afford to stand still and stop investing in the future), while outlining the measures that will need to be taken to return us to a surplus track.

It will be a challenging debate. The Conservatives will distort and attack any proposals made, while still refusing to admit to Canadians that hard choices will need to be made. We need to expose their empty rhetoric and the inadequacy of their projections.

And if this debate shapes up as one of interventionist government vs. small government that’d be just fine with me, and I know which side of that one I’d like to argue. And I think most Canadians would be with me too.

It’s starts, though, with adult conversations. Gerard and the Fraser Institute have gotten us started. Let’s all take it from there.

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Video: The government got it so wrong

Quite the day in Ottawa yesterday. Stephen Harper declares "we need to raise taxes" during question period, and to distract from the PM's verbal slip (which I'll continue to blast out of context because the Conservatives deserve a taste of their own medicine for a change) Jim Flaherty announces this year's deficit will be some $50 billion, the biggest budget deficit in the history of Canada.

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Stephen Harper: we need to raise taxes!!

Yes, it's true. Stephen Harper says the Conservatives will raise taxes! Que the incessant attacks against how now... Here's the quote, by Harper, from today's question period:

we need to raise taxes

Scandal! Shame! Outrage! And so on! Clearly, now the Liberals must mention this every time they ask a question in the HoC, use it on every member's statement, and repeat the line relentlessly every time they see a microphone.

What's that? You want the context? Context, shmontext, he says we need to raise taxes! He's a heathen, that's all that matters. Taxes!!

Ok, fine, here's the full exchange. Party pooper:

Hon. John mccallum (l): So the implication of what the prime minister said is to agree with the liberal party and increase ei. I would also suggest that both the prime minister and the minister of finance subscribe to an excellent publication entitled "deficits for dummies." It might help them come to some understanding. But my question to the finance minister is, canadians want to see the colour of your money. The deficits are soaring. The deficits are soaring. The promises are soaring. But we're seeing nothing invested in communities and canadians aren't seeing any jobs created.

The speaker: The right honourable prime minister.

Rt. Hon. Stephen Harper, Prime Minister of Canada: Mr. Speaker, let's be clear: When we did our pre-budget consultations, the liberal party wanted two more weeks of employment insurance. So, mr. Speaker, we gave five more weeks of employment insurance, plus all kinds of additional money for training for people both on ei and not on ei. These are measures to help the unemployed in this recession. What we're not going to do is every two or three months come up with another economic policy, another budget until we need to go into -- until we need to raise taxes. Our deficits are affordable, but they will remain short-term.

Context, shomtext. He said "we need to raise taxes"! To the barricades! Rawwwr, and what not!

____
PS. Check-out my entry for the YLC's positive politics ad challenge, "Is this your Canada?"

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On Michael and tax cuts, and politics too

Michael Ignatieff had a well-attended town hall meeting in Halifax yesterday, an event which seems to have generated a whole heckuva lotta coverage on the CP Wire. I'll deal with a few of them in separate posts, beginning with the economy.

If you've been reading this corner lately you'll know I've been interested in the upcoming budget and the forms of stimulus under consideration. I'm strongly supportive of a comprehensive package of infrastructure funding and feel its our best and most effective stimulus option.

Therefore, I was pleased to see Michael say a Liberal-led government would get the infrastructure money flowing more quickly so we can get shovels in the ground:

He said he would get a team together to call municipal leaders across the country to find out what infrastructure projects they need and how fast they can get started. That got the attention of Halifax Mayor Peter Kelly, who was sitting near the back of the auditorium.

"I’d phone you and say, ‘What do you need?’ " the Liberal leader said to Mr. Kelly.
"I’ve got a list," the mayor hollered back. "$1.2 billion."

Mr. Ignatieff said Stephen Harper’s Conservative government has been "astoundingly slow" in getting infrastructure money out the door, something he said has to change.

"We’re in a crisis. We’re in a serious crisis," he told reporters. "And I would rather err by doing it fast and making the occasional mistake — which then you, the voters, punish us for later — than sitting there saying, ‘Have we got all the boxes ticked?’ "

I have also been making the point that in my view, and in the view of many economists (with the exception of the alleged economist occupying the corner office in the Langevin Block) that tax cuts are extremely ineffective as stimulus. They will, by and large, be pocketed and not spent, defeating the purpose.

That's why I was disappointed to hear this from Michael:

"I think it’s going to be important to get stimulus into the Canadian economy fast, so we may be looking at tax cuts very quickly, tax cuts targeted at medium and low income, to boost their purchasing power fast," Mr. Ignatieff told the crowd of 200 at Neptune Theatre.

When asked later what form those tax cuts might come in, Mr. Ignatieff told reporters he’s in favour of the kind that are permanent, rather than a one-time break.

I'm disappointed to see Michael buying into the tax cuts as stimulus argument, but I can't say I'm surprised. It's politics.

*Why is Obama pitching large tax cuts as part of his stimulus package in the US? Politics, he needs to win over congressional Republicans for his larger stimulus package.

*Why do I fear Harper pushing large tax cuts masquerading as stimulus? Politics, he would want to both a) force the opposition to either support bad policy or vote against tax cuts so he can run an election on it, or b) further reduce government revenues in support of his ideological mission of dramatically shrinking the size, scope and power of the federal government.

*And so why is Michael speaking our for tax cuts as stimulus? Politics.You might not win an election running on tax cuts, but you sure won't win one running against them. So while I'm disappointed in one sense, in another a little political judgment every now and again isn't a wholly bad thing.

The litmus test for me, however, will be in what size and kind of tax cuts the Liberals propose. I do take some solace in the fact Michael was talking about “tax cuts targeted at medium and low income (earners).” I think the lower down the income scale you go, the more likely it is any tax cut will be spent rather than saved, increasing the likelihood of some stimulus resulting. So any tax relief, and I have said some minor relief as a sweetner wouldn't necessarily be a bad thing, must be targeted.

The majority of stimulus spending however must go to temporary infrastructure spending. Besides being more effective, the key word there is temporary. Remember, we're going into deficit to finance this, and we'll need to come out of deficit soon. (And if history is any indicator, it will be a Liberal government called on to balance the books). Infrastructure spending is a temporary expense. Permanent tax cuts (temporary would not be politically salable) would mean a permanent drain on government revenues, meaning the foregone revenue would need to either be recouped through a) tax cuts, or b) cuts to program spending. If history has taught us anything, it's that tax cuts won't pay for themselves.

While I recognize the need to position us in a politically salable position around tax cuts ahead of the budget, I hope we bear in mind the need to balance good politics with good policy, as well as Harper's true conservative motive in pitching tax cuts: making the federal government small enough to drown in the bath tub.

Tax cuts if necessary, but not necessarily....no, scratch that...

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Stimulus, yes, but how?

As we begin to move out of the holiday season and draw closer to the return of Parliament and the unveiling of the budget that will decide the face of this Conservative government, we'll begin to see more speculation, and planned leaks and trial-balloons, about what may be contained therein.

Just today I noted four different media stories, including one with comments from finance minister Jim Flaherty himself, pushing tax cuts, including further corporate tax cuts, as the appropriate stimulus for the next budget.

A piece in the Globe floats a “corporate tax holiday” for a year. Just let all corporations take a year off paying taxes. How much will this cost us? They can't say, but assure us it's not that much. Less than $40 billion to be sure.

Over in the National Post, they claim the pressure for corporate tax cuts is rising. OK. To support this they quote one source, the president of the Canadian Taxpayers Federation. A guy with his finger on the pulse, to be sure. Despite already substantial corporate tax cuts on the books, he wants more, and now.

A CP wire piece laments the lack of personal tax cuts from past budgets coming into effect this week. With increases in payroll taxes, most Canadians will be a tad worse off, tax wise. Unless they have the money to put into tax-free savings accounts, that is.

And finally, in another CP piece, Flaherty hints tax cuts may be on the way in the upcoming budget, as a way of boosting consumer confidence:

``There are a couple of ways to stimulate the economy. One is spending on the infrastructure side and other ways, and tax reductions _ leaving more money in people's pockets _ is also stimulus to the economy,'' Flaherty told reporters at a news conference.

``We've been reviewing other (tax) options,'' he added.

With the Conservatives having strangled government revenues over the past few years as part of their dogmatic quest to reduce the size and capacity of the federal government, the fact is it lacks the resources for more than minor tweaking of the tax system without massive deficits that would be economically unacceptable and too difficult to climb out of when the economy rebounds.

And besides, I'm not convinced that tax cuts, either corporate or personal, will do much of anything to provide stimulus or meet Flaherty's stated goal of improving consumer confidence.

Times are tough. Canadians are concerned about their jobs, and are cutting back discretionary spending and saving more in case they get into trouble. This, of course, has a trickle-down effect throughout the economy. Although, my delaying buying that beautiful 40” LCD HD TV I've been coveting probably effects the Japanese economy more than ours. or maybe the South Korean economy, I'm undecided on brand.

Nevertheless, it's a problem. But is putting, say, an extra $100 in my pocket through tax cuts going to make me more likely to pull the trigger and buy that TV? No. I'll likely save the $100, because a) it's not that much money, and b) my underlying concerns remain. And as for corporate tax cuts, the fact is substantial cuts that will give us extremely competitive rates are already on the books.

The way to increase consumer confidence is to increase our confidence we'll still have jobs in six months. Little tax cuts won't do that. Instead of sending everyone $100, pooling that money and putting it to work building infrastructure is a far more sensible policy. First of all, it creates jobs to build things like roads and bridges and subways. Good-paying jobs that will put money back into the economy, and return tax revenue. It will also create lasting infrastructure that will increase our economic competitiveness, for sound infrastructure is one of the cornerstones of a strong economy.

Minor tax cuts would be an expensive flash in the pan that would simply be the Conservatives pandering to their base, and trying to put the opposition parties into a difficult position by making them either support bad policy or vote against tax cuts. This is the same kind of political maneuvering at the expense of good public policy that got Harper in trouble with his economic statement. While this would be much more of a finesse-play than cutting public party funding was, it would still prove Harper has learned little except how to be a better snake. Some minor tax tweaks would be fine, but in my view the bulk of the stimulus in the next budget must be directed to infrastructure spending.

Going into a large deficit to cut taxes doesn't make sense, unless you plan to raise taxes to get back out. And who is really going to propose that? They'll just say we won't have to raise taxes, don't worry about it, enjoy your lollipop, it'll be fine. But it won't. If we're agreed on the need for a deficit budget, let's not be stupid about it.

This is an opportunity to invest in our future. Let's not waste it for trickle-down ideology.

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Businesses creates jobs in Ontario, ignore Jim Flaherty

This was the advice federal finance minister and Ontario MP Jim Flaherty had for businesses last month, after his budget:

Federal Finance Minister Jim Flaherty launched a post-budget blitz Friday by lecturing provinces on the need to lower taxes and taking a swipe at Premier Dalton McGuinty for making Ontario "the last place" in Canada to start a business.
...
"It discourages investment in the province of Ontario," he said. "If you're going to make a new business investment in Canada, and you're concerned about taxes, the last place you will go is the province of Ontario."

With the latest job creation numbers out yesterday though, it appears that business owners didn't heed Jim Flaherty's advice not to invest in Ontario:

Some 20,000 of those factory jobs disappeared in Ontario. Still, Canada's biggest province added a net 46,000 positions in February, as builders, business-support providers and public administration more than offset the loss.

Maybe that's why Jim seems to have changed his tune:

Federal Finance Minister Jim Flaherty said in London, Ont., that he was particularly pleased with the jobs growth in Ontario.

“This is a good development. We have economic growth in all regions of the country and people are able to adjust to get new jobs,” Mr. Flaherty said.

At least he's not bitter that business leaders didn't listen to him and invested and created jobs anyways. Thank god no one takes Jim Flaherty seriously.

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Ironies, the Conservative Edition

Oh, those wacky Conservatives. It's hard to believe we're so afraid of taking these guys to an election some days.

Take these two stories, both to do with tax policy, both written today.

Story the first:

TORONTO — The federal government has returned a volley in the war of words over Ontario's corporate tax rate.

Prime Minister Stephen Harper went to Bay Street Friday to urge provinces to cut the corporate rate to 10 per cent by 2012.

Ontario's rate of 14 per cent is one of the highest in the country and Finance Minister Jim Flaherty has outraged Premier Dalton McGuinty by saying that makes the province unpalatable to foreign investors.

Story the second:

OTTAWA — The chances of Canadian parents getting a $5,000 tax deduction by saving for their children's education grew slimmer Friday as the government vowed to kill the private member's bill and its author offered to compromise.

The Conservative government was taken off guard Wednesday night when Liberal MP Dan McTeague's bill, estimated to cost the treasury $900 million, passed third reading and was sent to the Senate for approval.

Short form version: Conservatives say tax breaks for corporations good, tax breaks for working parents for their childrens' education bad.

BONUS IRONY, SENATE EDITION

Story the first, from a few weeks back:

Justice Minister Rob Nicholson has warned the Liberal-dominated Senate to pass the Tory government's violent crime bill by the end of the month or face a possible early election.

And story the second, from today (from story two above):

If passed unamended in the Senate, the bill would likely get Royal assent and Canadians would be able to put up to $5,000 in a registered education savings plan for each child - and deduct the amount from their taxable income like an registered retirement savings plan.

But Conservative Ted Menzies, the parliamentary secretary for Finance Minister Jim Flaherty, said Friday that he has confidence the Senate will kill the bill and, if not, the government would resort to other measures.

Short form version: When it doesn't do what we want on crime the Senate is thwarting the will of the elected House, but we Conservatives would love it if they'd thwart the will of the elected house for us on tax cuts for parents to send their kids to school.

And here's a parting shot, from the same story:

One option is for the government to introduce legislation to undo the bill, or seek to amend the budget implementation legislation, making both a matter of confidence.

"But that might be contested because there's a rule in the House that you can't consider the same business twice in the same session, so there's no guarantee it would get through," said Ned Franks, a professor emeritus at Queen's University, who is an expert in parliamentary procedure.

No, no don't contest it! Please! An election triggered by the Conservatives trying to kill a tax cut, and not just any tax cut, but one for RESPs? If the nervous nellies can't get out and campaign on that then there truely is no hope.

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Bigger swimming pools and faster private jets

The Cons want to give tax cuts to the rich. Yes, you read that correctly. Conservative finance minister Jim Flaherty wants to give the wealthy and richest amongst us a tax break. Kind of a reverse Robin Hood I guess. The benefits will trickle down eventually to us poor, unwashed masses, I'm sure.

At least he's being honest this time in saying he wants to give the wealthy a break. Unlike with his GST cut which, while sold as being great for Joe and Jane Canadian, was really a much greater benefit to Todd and Buffy Canadian with the money to drop on a new BMW, while average folks saved nickels and dimes.

Anyway, this time Jim is beating the brain drain/competitiveness drum, saying we're losing our wealthy to other countries with lower taxes.

"We need to do more on the personal income-tax side because we still have marginal rates that are disproportionately high when I look at our competition," Mr. Flaherty told reporters in Oshawa. "And one of the things that politically is more difficult to do but it still needs to be done and that is in the higher earning categories between $100,000 and $200,000 a year in income."

Yes, pity those poor folks making $200,000. But in all seriousness, it would be nice to see Jim give us some stats to bolster his case. For example, where does Canada rank in the G7 on tax rates in these income brackets? And, more importantly, is there some large outmigration of people in this bracket, and if so, are they citing taxation as a concern?

But there's another element here in this whole debate that's always overlooked. Certainly by the Conservatives anyway, who want to make government small enough to drown in the bath tub. And that's the fact taxes pay for things.

Does Canada have a higher tax rate than the US? I don't doubt it. We also have universal Medicare. Put medical costs on top of their tax rate and then make the comparison again. Our taxes also pay for many other things that contribute to making Canada a more livable country. Like generous social programs. Our wealthy also don't need to live in big gated communities to "protect" themselves. It's too simplistic to just say our taxes are X higher than this competing jurisdictions, so we need to lower them. Taxes are only one thing to consider.

More importantly though, should tax cuts for the rich really be a high priority for the government? If you're concerned about economic competitiveness, why not broad-based across the board cuts, with larger cuts for the low and middle income brackets? They're much more likely to pump their savings back into the economy and stimulate economic growth. Plus, they need it more.

The politics of this thing too are highly dubious. But I'd love to see the Cons run a campaign on tax cuts for the wealthy. Particularly with the questionable cuts they've made in other areas, despite the surplus. It may not be easy to set priorities, but this is a little much.

And speaking of priorities, Flaherty's truly are out of whack. At the same time he's telling us we need to give tax breaks to Richie Rich, he's turning a blind eye to crumbling infrastructure:

In response to a national report saying the crumbling infrastructure in Canadian cities would cost $123 billion to fix, Jim Flaherty said municipal leaders upset at the lack of funding should stop "whining . . . and do their job." Mr. Flaherty also said the federal government was "not in the pothole business."

So, according to Conservative priorities, instead of fixing roads and bridges and investing in public transit, we should cut taxes for the rich. We'll just squeeze tighter onto the Go-Train so Mr. CEO can buy a third Lexus. Totally makes sense to me Jim.

Last word to an actual economist (I know Harper is supposedly one too, but this guy actually knows a little bit about economics):

Don Drummond, chief economist of Toronto-Dominion Bank, joked that he "would never want to dissuade anyone from providing tax relief to bankers. That is a great idea that should be supported by all Canadians."

But, he said, "if it's marginal personal income tax rates one is concerned about, the gaze should fall at lower income levels. There we truly have impaired the incentives to work, save and invest, because once various benefits are clawed back, individuals and particularly families keep very little from that last dollar earned."

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Governing is about choices...let’s give them choice

If you polled 1000 Canadians, I bet you, say, 80 per cent of them would say they like cake, and they’d love it if the government enrolled them gratis in the cake of the month club. Starting with angel food in January, all the way through to ice cream cake (my fave, the one from DQ with the chocolate fudge crackle) in December. Because, except for those that perhaps can’t eat sugar, everyone loves cake. And, even better, what tastes sweeter than free cake?

That’s why the results of this particular poll are wholly unsurprising to me (h/t Steve):

The Canadian Press Harris-Decima poll – conducted in the three days after the Halloween economic update – found that 83 per cent of Canadians surveyed said they supported the income tax cuts.

Seventy-six per cent approved of reducing the GST by one percentage point.

So, Canadians would, by and large, not say no to a tax cut. And they’d like a free cake too.

What would happen, however, if you introduced choice? Because our free cake program would cost money. We’d need to buy the cakes, for one, although by buying in bulk we could probably get a deal, maybe from some super bakery in China. We’d need some bureaucrats to run the program, a department of baked goods if you will. Maybe even a cake registry so we can track the cakes to make sure no one gets extra cakes, and ensure everyone gets their just deserts. The lessons learned on the gun registry will come in handy – don’t worry, we’ll get it right this time, no billion-dollar flans.

So, to pay for our cakes for the masses program we’re going to need to trim somewhere else in the budget. Luckily though, we have a surplus at the moment, so no budget cuts needed. We could do something else with the surplus though than buying everyone cake. Like, say, universal daycare, and a cupcake per month for every child under six.

Ask Canadians if they’d like free cake they’re going to say yes. Give them a choice between free cake and universal daycare and a cupcake for their kid (with the option of two cupcakes and a juice box if the parent chooses to stay at home or enlists grandma to babysit) and the result will be very different.

The key, though, is to give people that choice, and that’s what we Liberals have been doing a bad job of. Harper is out there offering everyone free cake, and we’re just saying cake bad, no cake for you! Of course people are going to respond poorly to that. I would too. Tocuhe pas my cake Stephane!

We need to offer Canadians a choice. Cake looks good in isolation. But, when brought into context and contrasted with, say, a major push to eliminate child poverty, cake, or tax cuts, cake is viewed in a whole other light. When contrasted against such a choice, be it a real, flexible (meaning some kind of consideration for parents to opt-out and home care) daycare, or fighting child poverty, Harper’s GST cut is more easily seen for what it is: a cynical, selfish vote buying measure that 101 economists agree makes piss poor economic sense.

That’s why I’m cautiously optimistic to read this (again H/T to Steve):

Stephane Dion is poised to unveil a central plank in the Liberal election platform — a "bold" plan to reduce poverty in Canada.

An insider close to Dion said the Liberal leader will set ``aggressive but realistic" multi-year targets for reducing poverty in general and child poverty in particular.

He will also outline the policy tools a Liberal government would use – bolstering existing income support programs and new investments in things like child care and education – to meet those targets.

If this is true, if we are going to come out with some real, comprehensive and bold policy then it’s about bloody time, says I. Because it’s time we started defining ourselves as something other than merely just opposed to the Harper agenda. And it’s time we started illustrating the stark contrasts between Liberal and Conservative philosophies. And it’s time we started offering Canadians choice.

An income tax cut and a per cent off the GST, or an income tax cut and a major initiative to tackle child poverty? I know the side of that debate I’d like to be on. I’ll bring my own cake to the party.

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Liberals and tax cuts

This morning Jason touches on how the Conservatives are attempting to control the media message on tax cuts, and how the media are falling for it. Unfortunately, our collective memories, and attention to details, are pretty short.

After all, trying to claim the Liberals are anti-tax cuts doesn't coincide at all with the reality of the past 10-plus years. It's just not true. After the Chretien/Martin Liberals balanced the budget, they brought in some of the largest income tax and other tax cuts in Canadian history.

Liberals favour tax cuts. But what we favour are smart tax cuts, that will spur economic growth, improve competitiveness, and will benefit those that actually need the help. What we oppose are tax cuts that disproportionately favour the wealthy, like the Harper GST cut. And we oppose using tax credits in attempts to buy the votes of specific demographics, needlessly complicating the tax code.

And, speaking of the Harper GST cut, lets not forget it was the Harper/Flaherty Conservatives that REVERSED Liberal income tax cuts. I'm paying more income tax under the Conservatives than I did under the Liberals.

The Liberals also favour a balanced approach. Rather than cutting the GST by a further one per cent, wouldn't it be better to dedicate the $5 billion that would cost to fighting child poverty, as Stephane Dion proposed during the leadership campaign?

Once again, just like on its justice legislation and a host of other issues, the Conservatives are trying to pull the wool over the eyes of Canadians and hide the facts of the record. We shouldn't let them get away with it.

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Sensible tax policy from Ontario

I like this announcement from health promotion minister Jim Watson. It just makes sense. The costs of smoking-related illness are a huge drain on the health care system, so why not make it cheaper and easier for people to quit? Any foregone tax revenue from the nicotine patch will be made back many times over in reduced health care costs down the line. Hopefully Ottawa will follow suit.

Smokers trying to quit are getting a break as the provincial government scraps its 8 per cent sales tax on over-the-counter nicotine replacement therapy and challenges Ottawa to remove the GST.

The Ontario measures take effect Aug. 13 and will save consumers about $5 million a year on nicotine patches, inhalers, gum, lozenges, sprays and tablets, Health Promotion Minister Jim Watson said.

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Adler: Reality is what I say it is

Came across this rather amusing commentary at the National Post Web site from esteemed right-wing blowhard Charles Adler. It’s quite the twisted little bit of illogic to say the least.

Repeating the died in the wool mantra of the right that taxes are too high and tax cuts are a cure all, Charlie seems to downplay a recent Leger poll that said Quebecers don’t want tax cuts, and other polls of a similar nature. He doesn’t do a very good job though.

There are two secrets behind those polls. 1) They generally load the tax cut question with something like this: Would you like a tax cut or would you prefer that hospitals have enough doctors and nurses and medicine? 2) Many of the folks who respond to the pollsters tax cut questions don't pay taxes.

That’s not called a loaded question Charles, that’s called context.

The fact is, taxes pay for things, like services. People also want those services. So if you ask someone in isolation if they want a tax cut, they’ll say sure. If you ask someone in isolation if we should increase health spending, they’ll say sure. But ask someone if they’ll support cutting health spending to pay for a tax cut, or raising taxes to pay for more health spending, and you’ll get a much different question.

Asking either question in isolation would be useless. The questions as Charles laid out are entirely appropriate. Of course people favour tax cuts, the question is how important is it to them compared to other issues.

Once again, the Simpsons put it so well. This clip is from an episode where the teachers go on strike over wages. Fast-forward one minute in for a perfect illustration of the taxes vs. services debate, and the fallacy of Adler's argument.

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Hells no McCallum

My jaw dropped when I came across this story (h/t Jason), which says Liberal finance critic John McCallum says the party is considering the idea of raising the GST back to seven per cent. I mean, seriously John? WTF?

The Liberal party is debating whether it should pledge to reverse the $6-billion cut to the GST made by the Conservatives, as a means of funding broad-based income tax cuts.

John McCallum, the party's finance critic, is understood to have pushed the idea of increasing the federal goods and services tax back to 7%.

Allow me to save the party the money it might otherwise spend on focus-testing this stinkbomb: it’s a dumb idea. Stupid with a capital S. Paging anyone with any political antanne? It’s not often I agree with the head of the Canadian Taxpayers Federation, but they’re bang-on here:

…an increase in the GST would be "electoral suicide."

"The Conservatives would have a field day. The Liberal caucus has got to give its head a shake if it is contemplating increasing the most hated tax in Canada," he said.

A field day indeed, I bet Harper and Flanagan are as giddy as little girls at the prospect.

Now, I agree the GST is a more effective tax than income tax, and cutting income tax is a better, fairer course than cutting GST. I agree with Dion’s pledge to cancel the scheduled GST cut from 6 to 5, and putting that money to fighting child poverty instead. That’s a good policy. And I was against the cut from 7 to 6, and posted often on the shortcomings of the Conservative move during the campaign.

But what’s done is done. You can’t roll back the clock. Yes, it was a dumb cut, particularly since the Cons combined it with an income tax increase. But if we couldn’t successfully make that case during the campaign, how in the hell do they think we can make the case for raising the freakin’ thing now? Not a chance. Leave the GST alone. Focus on broad-based tax relief.

This one needs to be nipped in the bud now. McCallum either needs to make clear it was his idea and he’s thought better of it, or Dion needs to distance himself from it, and make clear it’s off the table and was never seriously considered. John is a smart guy, he's done a good job exposing Flaherty's incompetence and developing a good alternate policy on income trusts. But this seems to be a case of the economist needing to come down from the tower.

Things are starting to go better for the LPC these days, or at least go worse for the Cons. Let’s not shoot ourselves in the foot, nay, the head, shall we please?

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