Thursday, March 22, 2012

A Buffet rule for Canada?

From the Star today, a story about doctors calling for the rich to pay a greater share of income taxes in Canada.  This may come as a surprise to many Americans, who assume the Canadian system is naturally much more progressive than in the U.S.
A new organization of well-paid doctors thinks that they — and other high-income earners — should pay more in taxes.

“Who knows?” physician Michael Rachlis, one of the founders of Doctors for Fair Taxation, told me Wednesday. “Maybe we’ll start a trend. Maybe we’ll see a Lawyers for Fair Taxation start up.”
The reporter says he is not going to hold his breath.  He continues:
Most governments don’t have the nerve to scrap progressive taxation entirely. So they’ve been doing it gradually by reducing the number of income-tax brackets and by raising more money through user fees and consumption levies like the HST.
The upshot of this, as a recent study from the Canadian Centre for Policy Alternatives demonstrates, is that the poor in Canada now pay a greater share of their income to government in the form of taxes than do the ultra rich.
Which is the antithesis of the bargain made when governments first began to levy income taxes almost 100 years ago.
Doctors for Fair Taxation argues that a more progressive tax system would be good for human health. 
I'm not sure what the angle for Lawyers for Fair Taxation would be.  Americans for fair taxation of course have the opposite goal.


  1. A couple of historical notes from a Canadian perspective. Contary to what Americans would tend to believes historically there is case to be argued that Canada has historically always had a more "regressive" system of taxation(although it can be argued quite strenously that the overall policy outcome of a larger social safety net in Canada is in fact "progressive"). Canada didn't introduce an income tax until five years after the US in 1917 and as a political "compromise" shortly after that introduced the infamous "manufacturers sales tax" which existed until 1991 when replaced by the GST. Additionally after World War Two much of the early devolpment of the social safety net was paid for at the provincial level by the initial introduction of the first retail sales taxes(In Quebec this had already started in the 1930s). When Ontario introduced its retail sales tax back in 1962(Ontario RST was abolished and replaced by the GST harmonized HST in 2010)the justification was to finance the buildout of the community college system.
    This closest attempt to move towards a more "progressive" income based system of taxation was in the late 60s and early 70s under the Carter Commission. However by most accounts the Carter commission was a complete failure and the government of Pierre Trudeau decided the furthest extent of reform they were willing to undertake was to introduce a capital gains tax for the first time while at the same time eliminating the estate tax(leaving Canada as one of the few industrialized countries without one). Trudeau also started the initial shift of the corporate income tax system toward territoriality for active business income.
    The death of the Carter Commission in my mind logically lead towards the introduction of the GST in 1991(under Carter's proposals the Manufacturers Sales Tax over time would have simply been eliminated)and a greater shift towards consumption as the basis of taxation in Canada. In 1993 on the heels of the unpopularity of the introduction GST Jean Chretien upon being elected famously pledged to scrap it and then completely backtracked bringing instead in the first attempt outside of Quebec's TVQ to harmonize the provincial RST's with GST in New Brunswick, Newfoundland, and Nova Scotia(this is the start of federally administered HST system). By 1999 Chretien and Finance Minister(and later PM)also started cutting the corporate tax rate. More recently you have the head fake of the federal Conservative cutting the GST to 5% but then later in 2010 inducing centre-left Ontario Premier Dalton McGuinty to harmonize provincial consumption taxation with the GST.
    Over the last 30 years the Canadian Prime Minister who actually raised taxes the most was probably Brian Mulroney although a lot of Mulroney tax increases were hidden. Much higher cigarrette and alcohol taxes, the corporate capital tax(now abolished), and de-indexation of brackets(restore by Chretien in 1999).

  2. This is interesting, thanks Tim. It seems the pressures to move to consumption taxation are both internal, involving political tradeoffs, and external, involving the fear of capital flight and regulatory competition. The problem with setting up the progressivity of the social safety net as the counter to the regressivity of consumption taxation is that then when the social safety net comes undone, as it seems to threaten to do all the time (and perhaps especially most recently), the nation is left with the regressive tax system alone. In the States, Roosevelt famously insisted on tying the social security tax conceptually to the benefits system, because "with those taxes in there, no damn politician can ever scrap my social security program”-- he knew that even though the social security tax in the US is really nothing more than an income tax, if he did not earmark a tax specifically to the benefit program, politicians would make haste in whittling away and eventually demolishing social security as a federal program. That's a real concern and why the talk of social contract is so interesting in these discussions.