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General News · 3rd May 2010
Carrie Saxifrage
This paper made me think of Mansons Hall.
Full paper at http://www.policyalternatives.ca/publications/monitor/taxes-and-public-services

Politics is about choices. But we can’t make effective choices without clarity. And that means we have to have an adult conversation about taxes and public services. A conversation that starts
children to learn to enga
ge in virtually from the moment they can talk.
Eliminate government waste, [the right says], and we can have lower taxes without cuts in services. Sounds good, particularly when the various provincial and federal auditors provide an annual source book of public spending horror stories. The problem is: they don’t add up. Pressed for examples, the tax cutters always come up with spectacularly stupid-sounding things that governments have done that actually don’t add up to very much money. A little perspective will tell you that, overwhelmingly, public money is spent on things that Canadians value in their everyday lives.
Then there’s the argument that, if you lower tax rates, government revenue will actually increase. In other words, we can all pay less tax, and government will somehow get more revenue. It defies logic. It is also inconsistent with the evidence. Data from the OECD disclose that, since 1995, tax revenue in Canada has dropped from 36% of GDP to 33% of GDP. And while that may not sound like much, it represents a loss of nearly $50 billion a year in public revenue.
And finally there’s the argument that, if we cut public services, it wouldn’t be a bad thing services to deteriorate in the first place. It’s more than a bit much to hear from people who have been waging war against public revenue that our roads are full of potholes or that waiting lists are too long for elective surgeries. The left isn’t any better. It campaigns for better public services as if they can be provided for free. Or, more precisely, they won’t cost us anything because the higher taxes needed to pay for them will all be paid by people we don’t know. People who make a lot more money than we do, but not us. Big corporations, but not small businesses.
There are lots of problems with both the economics and the politics of that proposition. One problem with the economics is that, if you set the income cut-off at a level that is politically comfortable, there aren’t enough people left to pay for better public services. Another problem with the economics is that, if you raise taxes by a large enough amount on a small enough group of people, they’ll try to find a way to avoid paying them. And because these people have lots of money, they can afford to pay people to help them.
People just don’t believe you when you tell them they can have something for nothing. At best, then, the argument undermines the credibility of the case for greater investment in public services.
At worst, it reinforces the right’s idea that taxes are a burden to be avoided. That’s particularly true when the left tries to have it both ways and opposes taxes on the grounds that they impose a “burden” on average families (or whatever the code phrase for “us” is today). It seems breathtakingly obvious which ideological position is going to benefit from fomenting hostility towards taxes – especially when even the emotive language of “tax burdens” and “tax grabs” is borrowed from conservatives. Yet B.C.’s New Democrats based a campaign – a losing one at that – around the idea that a carbon tax imposed a “burden” on everyday people.
I’m not saying that we shouldn’t worry about how the obligation to pay taxes is distributed, or that we shouldn’t use the tax system as a mechanism for redistribution. What I’m saying is that we shouldn’t lose sight of the fact that the main reason we have a tax system is to pay for services that we as a society have decided to consume in common. Using the language of “grabs” and “burdens” invites people to ignore the basic fact that taxes pay for public services from which we all benefit.
Furthermore, looking beyond our borders, it ignores the reality that the nations that have the most highly-developed systems of public services pay for them, not with taxes that only “other” people pay, but with taxes like sales taxes and payroll taxes – taxes that are as visible as the public services they pay for.
It might be worthwhile to reflect a bit on how we got here. In the wake of the New Deal of the 1930s and the Great Society of the 1960s, conservatives were finding it hard to reverse the tide of public interest in (and popular support for) expanded public services. Conservative Republicans in the United States campaigned against government programs, only to discover that people actually liked their public services. Conservatives could get elected – but not if they held onto their openly conservative agenda.
The insight in the 1970s that led to conservatives dominating public discourse for the next 30 years was to separate taxes from public services in the policy debate. Instead of campaigning against public services – which people liked – they scared people silly with doomsday scenarios about government deficits and campaigned against taxes that most people would choose not to pay if they could. Win the battle against taxes, the strategy went, and no government – no matter what its political leaning – will be able to avoid cutting spending.
The separation of taxes from the public services they pay for fundamentally altered the terms of the debate.
Ignoring the public services side of the tax and services trade-off produces a kind of collective self-loathing through which we ignore many of our greatest achievements as a society and leave others to wither away.
It reinforces an atmosphere in which political dishonesty becomes an essential tool for survival.
And because we ignore the distributive impact of public services, we fall into the trap of opposing the very taxes that provide much of the financing for the more comprehensive systems of public services upon which the countries whose systems we admire rely.
In the work that Richard Shillington and I did in a CCPA paper released last year, we found that public services in Canada amount to a demogrant – most Canadians derive roughly the same dollar value from public services, regardless of their family type or income. Low-income Canadians benefit somewhat more, because of income-related transfer payments like the child tax benefit, employment insurance, and the guaranteed income supplement at the federal level, and social assistance at the provincial level, but other than that, the per capita benefit is about the same – $15,000 – regardless of income or household type. The relative benefit from different types of public services varies by family type and income, but the total is remarkably consistent.
This should have a significant impact on the way we think about tax policy. In essence, any tax that is better linked to economic resources than a flat head tax will, in combination with the public services it pays for, result in a more equitable distribution of resources.
Even the way we measure inequality feeds the one-armed debate. Our measure of inequality is the distribution of income, after taxes and transfers – as if the taxes we pay that we don’t get back through direct transfer payments are of no value and, even less defensibly, make no contribution to the moderation of market income inequality.
We undervalue the public economy in other ways as well. Even in our national accounts, we undervalue public services. By convention, public services are valued at cost; we make no attempt to measure the benefits they deliver.
So we implicitly assume that we get no return for our investments in public infrastructure.
We implicitly assume that we get no value from the efficiency achieved through public provision of health care insurance.
We implicitly assume we get no value from productivity improvements in the delivery of public services, to the point where productivity improvement shows up as a reduction in value.
We underinvest in what we undervalue. And we undervalue public services.
The disconnect between taxes and public services is not politically neutral. It is central to the political strategy of conservatives. And when parties of the centre and left play with that disconnect, it can come back to haunt them.
And as we turn our attention to the big picture trends that are sure to influence the way we live in the future – the aging of our population; growing income inequality; and the inexorably slow-moving crisis of climate change – all require more public investment, not less. All place greater demands on our ability to accomplish things together, as a society.