In a 2009 article in the Toronto Star, progressive economist Hugh Mackenzie commented on the "strange debate that separates taxes from the services they pay for." This is a problem across the political spectrum. Mackenzie criticized the tendency of the Canadian Left to "[campaign] for better public services as if they can be provided free. Better services won't cost us anything because the higher taxes needed to pay for those services can be paid by people we don't know. People who make a lot more money than we do. Big corporations but not small businesses."
Mackenzie was referring to the British Columbia NDP's campaign against the carbon tax as well as the campaigns against the HST "tax grab" by the NDP in both B.C. and Ontario. This continues today with the Ontario NDP's opposition to road tolls in the Greater Toronto and Hamilton Area to pay for much needed transit improvements, which eerily echoes Rob Ford’s “war on the car” narrative.
Just this past week, in a truly amazing statement when asked about taxes, this from Tom Mulcair:
Mulcair seemed surprised when he was asked if taxes would go up under an NDP government.
"You’re the first person who’s ever asked me that," he said, adding quickly that they most definitely won't.
"I am categorical on that," he said. “Several provinces are now at the 50 per cent rate. Beyond that, you’re not talking taxation; you’re talking confiscation. And that is never going to be part of my policies, going after more individual taxes. Period. Full stop.”
The Canadian Left, in seeking to justify this and similar stances, will often point to historic left-wing "anti-tax" moments, like the fight against the Poll Tax in the UK in the '80s. But in doing so they take the issue out of the present neo-Liberal context of an ideological campaign against the very idea of taxes. This campaign has been exceptionally successful and has been a critical component underpinning both the appeal of right wing populist ideas (and a major factor in why people support the right and its ideas even against their own seeming class interests) and the growth of rampant, "Gilded Age" levels of social inequality.
On the surface, the "people we don’t know" argument seems appealing. After all, the Left has long fought for progressive taxation – based on the ability to pay – as a key means of redistribution and raising the revenue to pay for welfare state measures and public investments. Progressives have rightfully condemned the changes of the tax system over the past two decades that have benefited affluent Canadians. By increasing taxes on “people we don’t know”, so the argument goes, we can provide "tax relief" to hard-working, middle income Canadians and "everyday families."
This argument is problematic for several reasons. It underemphasizes the issue of revenue and the devastating impact of tax cuts in Canada, as well as the redistributive power of public spending. The argument is also contradicted by the experience of the Nordic countries, which have the most advanced welfare states and lowest levels of inequality among OECD countries.
Further, it helps to reinforce the complete illusion that taxes are, in fact, a "burden" upon the "middle class" at all, an illusion that furthers right wing ideological ideas and objectives. It feeds into false 99 per cent fantasies that mislead with the facile notion that social inequality and economic injustices can be rectified exclusively by making "them" (big business, the rich, etc.) pay, while not increasing taxes on, say, a household with $100,000 in annual income (a household that would, one might note, fall well within the parameters of the 99 per cent).
As we will show, this reluctance to confront the socially negative ramifications of tax cuts for the middle class and this capitulation to the notion of taxes as a "burden" upon the middle class, has severely limited the ability of government, of any ideological stripe, to actually implement or re-implement social programs and polices that played a direct role in lessening inequality and its consequences. The "War on Poverty" that governments declared at the height of the post war period of "social compromise" was actually succeeding and it was founded and predicated upon far higher personal income taxes for citizens of all classes.
Also, these ideas underestimate the highly disparate nature of "need" within the so-called 99 per cent. They equate the desire of a household with an income of $100,000 a year to finance the mortgage on a large house, or buy a second car that they feel they "need", with the ability of a family with an income of $35,000 a year to send their kids to "public" summer programs (which are no longer free in most centres), to access increasingly expensive higher education, to have properly government funded daycare, or any number of other programs that would fundamentally alter their lives and social mobility. These "needs" are highly different morally and ethically.
Over the past two decades, neoliberalism has been consolidated as the economic orthodoxy in Canada, at all levels of government and is now supported by political parties of all stripes. In order to cultivate popular support for neoliberalism, the positive role of government came under a media and corporate assault. Public services were demonized as overly generous and bureaucratic; the more efficient private sector could do it better.
Tax cuts were sold as a means of freeing Canadians of taxes and giving them more money to spend. Taxes were thus not a positive investment in society but a burden to be avoided. There developed a culture of tax revolt that crossed class and ideological lines.
As Marxist economist Leo Panitch put it:
It also had to do with a tax revolt on the part of the working-class, which starts to see less and less for itself in the welfare state. Respectability leads this segment to increasingly deride that working class we now call the precariat. And many of them opt -- and the unions aren’t able to stop many of them opting (to some extent they’re even complicit in it) -- for the $200 a year they can save by voting for a government that offers them less taxes. A portion of the working-class opts for that. And the left was complicit in it when it opposed, for example, the sales tax. One needed to say and should be saying that Sweden’s value-added tax is 23 per cent. You can't have a welfare state without it.
Jean Chretien and Paul Martin slayed the deficit by massively cutting public spending, and dismantling much of the progressive state that had been built up during the 1960s and 1970s. They then implemented personal and corporate tax cuts and also slashed the capital gains tax, the single most regressive tax cut in Canadian history. Tax-cutting has continued under Stephen Harper, who cut the GST by two points, implemented many boutique tax cuts for "middle class families" and continued to cut corporate taxes. The effect of these tax cuts has been to turn Canada into a more unequal and market-dominated society.
It is true that the right-wing line that “there aren’t enough rich people, so why bother taxing them?” is a self-serving one that can easily be refuted. At the same time, we need to recognize that working and middle class Canadians benefit far more from quality public services, paid for by taxation, than from tax cuts.
Tax cuts have also had a devastating impact at the provincial level. While this is true across Canada, taking the example of the past nearly twenty years of fiscal policy in Ontario, a key component of the Common Sense Revolution of Mike Harris was a 30 per cent personal income tax cut. This cut and its preservation and expansion over the years by both the Tories and Liberals, fundamentally changed Ontario politics. Once in place, the province could not return to previous levels of spending for health, education, welfare and municipalities, and no major political party has dared to suggest reversing it.
The profound effects that this has had are not widely understood as they have been not only compounded by further tax cuts, personal and otherwise, under the provincial Liberals, but also by the fact that a generation of complete cross-ideological subservience to the underlying concept of tax cuts have led them to become so ingrained in our political and economic culture that they fundamentally narrow the scope of the possible in terms of redistributive or social program options.
The tax cuts remove at a bare minimum between $12 and 14 billion a year from the coffers of the government of Ontario. This dramatically limits not only attempts to preserve social programs and infrastructure, but basically makes it impossible to expand them in any meaningful sense. It has also led, in Ontario and across the country, to large increases in the structural debt of many provinces, a fact that is significant as it means that more money is spent servicing the debt every year, essentially meaning that it is spent paying interest to largely foreign financial concerns as opposed to on services for citizens.
In the case of Ontario, for example, the amount spent servicing the debt is $10.6 billion a year, which is greater than what the province spends on any other single program or service, like welfare or transit, other than health and education.
After two decades of tax cutting, both the federal and provincial governments have lost billions of dollars of revenue. By 2009, tax cuts under both Liberal and Conservative governments since 1995 had deprived the federal treasury of about $50 billion annually. We need to restore the fiscal capacity of the state to pay for welfare state measures and much needed public investments. In the current context, calls for "tax relief" -- even if ostensibly from the Left -- are dangerous and wrong.
The Canadian Centre for Policy Alternatives, in its Alternative Budget noted that raising the top federal income tax rate from 29 per cent to 35 per cent for those earning $250,000 or more would yield about $3 billion annually. A Financial Transactions Tax would raise $4 billion, while an inheritance tax on very large estates would yield $1.5 billion. Closing tax loopholes -- including by taxing capital gains at the same rate as wage and salary income and by cracking down on tax havens -- would bring in about $10 billion. Erin Weir notes that raising the corporate tax rate to 19.5 per cent would raise $7-8 billion; restoring the 22 per cent corporate tax rate would raise $11-12 billion. All of these are worthy proposals that should be adopted.
Yet we should not be under the illusion that these tax proposals -- or even stiffer ones -- on "people we don’t know" -- would restore the fiscal capacity of the state that has been undermined over two decades of neoliberalism, let alone allow the state to provide "tax relief" to the "middle class or entirely do away with consumption taxes such as the GST. It has been long understood that consumption taxes are an excellent way of raising revenue, and provide a more steady revenue stream to the treasury than taxation on income, which fluctuates during economic downturns. According to the Parliamentary Budget Officer, each percentage point cut to the GST costs the federal government $7 billion annually; Harper’s GST cut alone thus costs the federal government $14 billion annually.
Looking in comparative perspective, there is a strong correlation between direct spending and equality; countries with higher taxation are more equal. It is for this reason, that it is important to recognize not only the redistributive function of taxation, but also its role in financing welfare states and providing benefits that fall to low-income and dependent workers. Taxation as a percentage of GDP in Canada in 2011 was 31 per cent, below the OCED average of 33.8 per cent. This was far below that of Sweden (44.5 per cent) and Denmark (48.1 per cent), though ahead of the U.S. (25.1 per cent).
As Hugh Mackenzie notes: "Nations that have the most highly developed systems of public services pay for them with all kinds of taxes, including sales taxes and payroll taxes that everyone contributes to because everyone knows there is no such thing as a free lunch."
The Nordic countries of Sweden, Denmark and Norway all have a Value Added Tax (VAT) of around 25%, far higher than the GST/HST, which finances the welfare state. The Nordic model is notable for its reliance on transfers, which do the heavy lifting in terms of countering inequality. While personal income taxes are higher than in Canada, they also pay much higher levels of consumption and payroll taxes. Yet the net impact of the tax-and-transfer system is progressive. Rather massively so. In part, this is for the obvious reason that because the affluent spend more, the net impact of consumption taxes are progressive if they are spent on human need.
Indeed, the redistributive power of public spending -- on healthcare, education, pensions and an array of other public services -- should not be ignored. A CCPA report, Canada’s Quiet Bargain, found that more than two thirds of Canadian households receive more than 50 per cent of their income in public services, a far better deal than the market and far more than they pay in taxes. This was even more true before the tax-cutting mania of the past two decades.
The taxation of private consumption can fund the provision of public goods (such as parks, public transit, public housing, etc.) that are more ecological than private goods. Furthermore, public goods provision has the effect of decommodification which is as important as progressive taxation in terms of moving toward socialist relations in capitalist societies.
Beyond this there is the basic morality of attempting to put a break on consumption. Whenever one speaks of obviously environmentally or socially beneficial taxes or revenue tools like taxing gas or fuel consumption or whenever one opposes populist campaigns to cut them, some on the left will talk of examples of how "ordinary people" cannot afford to pay them. Even when this is true, there are many other means, such as rebates, to rectify the impact on those who are genuinely harmed by such taxes.
But what they never talk about are the wealthy homeowners who will get gas tax cuts, the reckless or irresponsible users of cars or air conditioning or home heating who will get tax cuts, or the reality that if we wish to alter social behaviour and to change patterns of consumption, taxing behaviour that is environmentally destructive or anti-social in its implications is not regressive at all. It is one of the primary goals of socialist politics to shift society away from the wanton or reckless behaviour of not only corporations, but also the consumerist society that they have manufactured. This is simply impossible in any meaningful way without altering the behaviour of consumers, especially those whose consumption patterns reflect their higher incomes.
The state has a fundamentally important role to play in shifting patterns of behaviour through taxation, and when shifting people out of cars, or encouraging them to consume less gas, electricity, water and other resources, the progressive nature of implementing disincentives is clear. This is even more clear if these taxes and revenue streams are tied directly to social goals like mass transit expansion.
Our consumerist society is highly destructive and the patterns of consumption it has created are both unsustainable and morally wrong given the consequences to the planet and the disparities that exist in consumption globally. It will not be changed by goodwill. Next time anyone proposes blanket tax cuts to home heating or opposes taxing car use, ask yourself about how progressive it really is to give a tax break to heating millionaire's mansions, or to oppose encouraging car pooling or making sure that the person driving that empty SUV might be made to think again if fuel taxes are high.
Cutting consumption taxes on these fronts especially amounts to little more than revenue depleting, environmentally negative proposals that are boutique policy gifts and handouts to the upper middle and upper classes.
In terms of generating the revenue that will allow for the possibility of real social democratic governance and that will give the state the resources needed to implement a social agenda that will directly benefit the overwhelming majority of citizens, the "progressive" necessity is very clear.
Higher taxes in all forms.
The restoration of the GST to 7 per cent alone would significantly offset the cuts to the public sector. Further increases to the tax are essential components to the improvement and expansion of public services. Transfers to lower-income households must be significantly increased as well. We should fight for a return to more progressive taxation, and begin with calls for higher taxes on capital and on wealthy individuals. Given the more inegalitarian income distribution in Canada as compared to the Nordic countries, the progressive income tax needs to play a greater role in the tax mix. We welcome, for instance, the call by Linda McQuaig and Neil Brooks for combined federal-provincial income tax rates of 60% and 70% on incomes over $500,000 and $2.5 million, as proposed in their book The Trouble With Billionaires.
We would propose the reversal of all income, corporate and sales tax cuts that have been implemented in the last 20 years. We would further propose the expansion of taxes on fossil fuel, natural gas and electricity consumption, as well as on cars and their usage, with an extensive rebate program to offset the impact on actually lower income citizens. For instance, a progressive carbon tax could be designed so the bottom 50 percent of households would be net beneficiaries, where 80 percent of households would receive at least some credit and the most affluent 20 per cent that have the biggest impact would pay the most.We would also favour revenue generating tools like heavily taxing luxury goods.
Altogether these proposals would generate tens of billions of dollars in extra revenue annually for the government.
We would suggest that this be used to build, to start, a national daycare program, a national housing strategy, free pharmacare, eye care & dental programs through transfers and incentives to the provinces, an anti-poverty strategy, a public transit infrastructure campaign and a transition to a 'green' economy as well as to reassert the state's role in the economy and in social justice in the many other ways that having these resources would allow.
As leftists we can fantasize about a coming revolution that will make taxation unnecessary and wipe away the state altogether. At the other end we can pretend that relatively minor tax increases on small groups of people or on corporations will solve everything like manna from heaven.
Or we can grow up.
Matt Fodor is a Toronto based writer and academic. He is a Ph.D. candidate in political science at York University.
Michael Laxer is a political activist, a two-time former candidate and former election organizer for the NDP, was a socialist candidate for Toronto City Council in 2010 and is on the executive of the Socialist Party of Ontario.