Friday, December 02, 2005

Buzzword-Compliant Tax Cuts

This post at freelantz which discussed the Conservative Party's proposed 1% cut to the GST. Link. In the post the idea is floated that a consumption tax is 'more fair' because it is an 'opt-in' tax, i.e., if you choose not to buy things, then you pay less in taxes.

This is the comment I left below the post:
Consumption taxes are inherently regressive, because someone with a lower income is forced to spend a higher percentage of his or her earnings on the necessities.

A consumption tax hits someone who lives paycheque to paycheque much harder than someone with significant extra income.

As for the politics of this particular promise by the Conservatives, I don't know if it will have the impact that they are hoping, with many Canadians receiving a GST rebate cheque a few times a year, they might see that it isn't killing them to the degree that was feared when Mulroney first brought it in.

Another point: the GST was introduced in order to pay the interest on the national debt. Because of it Canada has actually managed to put a dent in the debt over time, instead of chasing a moving target.
Progressive taxation is one of the ways to try and slow the seemingly powerful tendency towards an increasingly large gap between the rich and the rest of us. And, as discussed in this excellent collection of essays, inequality itself seems to lead to poorer quality of life, regardless of any absolute measure of a population's wealth.

By al - 8:11 PM |

Comments:
A cut in the GST means that Canadians will spend more of their money on "stuff" and less on savings and investments. Savings and investments spur more growth in the economy than consumption.
 
I realized I'm a bit confusing in that I make a case that sales taxes are a worse form of taxation than income taxes, but then speculate that the conservatives won't have as much success as they might think with the proposed cut.

It is funny that cutting a sales tax over an upper-margin income tax is actually a very liberal move :)
 
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