Categories
Economy Taxation

The Debt

One of the incessant ‘Trudeau must go’ posts includes this feature chart. It pegs Canada’s total debt as $1,163 billion, and each individual debt as $31K. These numbers are supposed to frighten us. But what struck me is how low they are. Compare this, say, with total Canadian consumer debt of $2,200 billion. Average consumer debt is $20K excluding mortgages.

So let’s look at Canada’s federal debt. If I pay $4 tax per day, that stops the growth of the debt in its tracks. If I add, say, a car payment, we could eliminate the debt in four or five years. Redirecting this money would also slow inflation. So why don’t the Conservatives support this?

It’s because they know this level of debt is very manageable. And they know these payments would be even lower if we include things like corporate taxes. That’s the fallacy of “your share of the debt is $x.” It assumes corporations owe nothing, and that billionaires owe (and benefit) the same amount as you. The Conservatives are trying to scare you with a threat that is not real.

The fact is, Conservatives don’t actually want to eliminate the debt. They want to reduce spending on social services and give tax breaks and free money to the rich. But you can’t pay down the debt simply by reducing spending. You have actually pay down the debt. But that’s the part conservative governments never actually get around to.

Here’s another thing: who do we all owe this debt to? Roughly 40% of the total debt, and almost all of the recent debt, is held by the Bank of Canada. About half the remainder is held by Canadians and Canadian institutions. So we owe the majority of our debt to ourselves. It’s not like owning money to the finance company or to a bank, where we never see any value in debt repayment.

As Yannick Beaudoin and Mark Anielski write, “Canada’s debt is not like household debt. The persistent use of the household debt analogy by politicians and media is not only grossly inappropriate; it also harms Canadians’ ability to make informed decisions around ensuring the government spends appropriately, wisely and with accountability.”

Categories
Taxation

Tariffs

People have been generally supportive of the news that the aluminum and steel tariffs have been lifted and generally enthused about the pending ratification of the revamped NAFTA accord. I get that.

But commentators on CBC News went over the top today on the subject of tariffs. One person said, “if you support tariffs then you haven’t passed grade two.” Another said, “I can’t think of anything good to say about them, actually.”

I can think of one, right off the top: tariffs are a tax. They raise money for the public treasury. They thus make it possible to have public services and improve social welfare.

I’m sure the commentators weren’t thinking of that when they spoke about tariffs. They were most likely comparing tariffs only with other forms of taxation, such as income tax,  sales tax, user fees and subscriptions.

The general tenor of the opposition to tariffs is that they increase prices to consumers. But is this true? Not exactly.

First, consumers rarely pay directly for tariffs. Few consumers import or export goods. Tariffs raise prices only if they are passed on to the consumer by producers. Now it’s true that this usually happens. But not always.

The price consumers pay isn’t directly related to the cost of production. It is based on their willingness and ability to pay. And in a marketplace, typically prices are set to the highest rate that consumers are willing to pay. So you can’t simply raise prices – consumers will stop buying.

And that’s the real reason the commentators say there’s nothing good about tariffs. They may mean higher prices, but they mostly mean lower demand.

In fact, the whole idea of a tariff is to lower demand to the point where the consumer makes an alternative selection. Instead of buying imported pineapples they buy local pears. Instead of buying imported iPhones they buy domestic Blackberries. Overall, they purchase less, what what they do purchase has a higher price.

Tariffs, however, also have the unfortunate effect of plunging the economy into recession. Increased prices leads to inflation and higher interests rates, which makes it more difficult to buy goods and make investments. As well, the overall reduction in demand (both domestically, and from exports) results in increased layoffs and higher unemployment, which in turn depresses wages.

Tariffs point to the fact that our economy depends on maximum consumption and minimum price. And they point to hold these have over us: deviate from these, and you get recession.

However, these are also the causes of the greatest social ills. Maximum consumption is harmful. As Kalle Lasn says, productivity is killing the planet. And low prices also means low wages. And this has over the last 40 years led to increasing inequality between the rich and the poor. And – note well – a one-time increase in price wouldn’t matter if people were paid more, and received better social services.

No, the commentators oppose tariffs not because they hurt consumers, but because they hurt producers. They increase costs to producers, and reduce demand for their product, which means they need to become more efficient in order to compete.

(Ironically, the opponents of tariffs use the inverse argument, saying that lowering tariffs force local industry to increase productivity, because of lower costs from exports. This would be true – except that these lower costs are usually produced by lower wages, poor labour laws, less taxation, and environmental degradation.)

In fact, tariffs can act as a governor on the world trade engine. World trade without restraint leads to exploitation and ruin. Tariffs can act as a push-back against this: a way to ensure countries respect the environment, treat labour fairly, and provide adequate social services. In conjunction with other measures, tariffs can lead to a gradual equalization of economies, allowing countries to selectively develop and nurture local industries.

We’ve seen what happens when the global trade engine runs without restraint – it simply extracts value from everything and dumps it into the pockets of the rich. We need mechanisms to extract value from this global trade engine to support the welfare of everyone else, and to keep the engine from ruining economies and environments.

Tariffs aren’t the only tool. They should not be applied bluntly and without thought. Too much application of tariffs can be ruinous. And they make poor weapons of war. So there’s a lot to say against them.

But there are – contrary to the one-sided commentary I heard today – things that could be said in their favour as well.

Categories
Energy Taxation

The Carbon Tax

Politicians from the right are in full form these days expressing their opposition to what they call the carbon tax.

What they are attacking is more accurately what the government has been calling ‘putting a price on pollution’. And viewed from that perspective, it’s hard to deny the reasoning.

We would quite rightly object, say, if an apartment building just dumped its raw sewage on the road or onto our lawns. We would demand, and expect, that the owners of the building would pay to manage the sewage in some way.

They can call it a ‘sewage tax’ all they want, but the fact remains, sewage disposal isn’t free, and it has to be done. You can’t simply pass your sewage on to your neighbours.

It’s the same with the carbon tax, except the sewage in this case consists of climate-change gasses, including most especially carbon dioxide but also hydrocarbons such as methane.

The first objection to a carbon tax is essentially climate-change scepticism. I don’t think anyone really doubts the impact of climate change – the science has been conclusive for a decade now – but enough people are paid to sow doubt into the winds, and so expressions of scepticism persist.

The second objection is that the cost of a carbon tax is too great to bear. There are jobs at stake, or people depend on low-priced transportation, or alternatives are too expensive. All this may be true. But why is that my problem?

If you were dumping your sewage onto my lawn, I wouldn’t really care how much it would cost you to stop. My response would be something like, “Why should I have to pay to clean up your sewage?”

It’s the same for climate-change gasses. Sure, you may be making money, hiring people, and all the rest, but the cost for all this is being paid for by other people (including me). Your actions pollute the land, change the climate, and are already costing other people billions of dollars. Shouldn’t you be paying these costs?

A third objection is that people prefer incentives rather than costs. That’s just a straw man, though. People have tried incentives. That’s what the Ontario Liberal government’s plan was based on. When I purchased a plug-in hybrid electric vehicle, I received an incentive to offset the extra cost I was paying to use less gas. This program was killed by the new conservative government.

Even today, the story about the government paying Loblaws (a local grocery store chain) to install energy-efficient fridges was slammed by the conservatives. “Fast says he is curious how many ordinary Canadians could just walk into the prime minister’s office and ask him to buy them a new fridge.

The answer to the question is: all of them. That’s what the federal government’s plan does. It collects money from carbon pollution and redistributes it to people in the form of a rebate. Where the province has a plan – as Ontario used to have – then the money could be directed toward energy-efficiency, like fridges. But without a plan, it’s just distributed to everybody, no strings attached.

When it’s just a cost, they say there should be incentives. When there are incentives, they say there should be no payments. There’s no right way to make the polluters pay, and that, of course, is the point.

In the end, the opposition to a carbon tax boils down to a campaign by polluters to be able to keep on polluting for free, to keep on passing their costs on to the rest of us, and  to keep on recklessly endangering the community as a whole.

Indeed, the carbon tax should be viewed for exactly what it is – a compromise. Knowing the damage climate-change gasses are causing, the rational and common-sense response should be to make them illegal. Pull the plug on them. Force the polluters to stop fouling our community and our planet.

The carbon tax is a market-based approach to solve the problem. Instead of making pollution illegal, it makes it expensive. This creates an incentive for polluters to change their ways, and allows society adjust gradually to the change. Given the stakes, it’s a pretty generous compromise. Maybe too generous.

If you don’t want people pouring sewage on your lawn, if you don’t want people dumping carbon into the air, the answer is the same. You either force them to stop, or make them pay for the cleanup. What you don’t do is let them keep dumping their problem onto you.

Categories
Taxation

CEO Freedom Day

It’s hard to catch this because it happens so early in the year, but today is the day the average top-earning CEO made as much money as an ordinary person makes in a year.

The companies run by these CEOs will enjoy their own Corporate Tax Freedom Day before the month is done.

These same people pay the Fraser Institute and others to fuel outrage against government services on what they call Tax Freedom Day some time in May or June. By then, of course, we will have completely forgotten the free ride the rich have already enjoyed for half a year.

It’s a story that should be covered every day in the media, because it’s behind most of the social and political problems we face today. But even the stories that cover it make it about something else.

This year, for example, CBC is deciding to focus on the difference in executive pay for men and women. Now I get it, women are paid unfairly, and I support pay equity without reservation.

But the issue isn’t about Linamar’s Linda Hasenfratz making only $14.6 million. Nobody should be taking home that much, not her, nor the eleven other CEOs in Canada making more.

That’s why we have taxes. Sure, they raise money for the provision of common services, but this is something we’d need to do no matter what. The main beneficial effect of taxes is to limit the gap between rich and poor, to ensure that we don’t reach unsustainable levels of inequality.

The rich don’t care about sustainability because they believe they would survive whatever calamity could ensue. They’re wrong, of course, but that’s no comfort for the rest of us.