The Point of Taxes

Taxes

What follows is my submission to BC’s Select Standing Committee on Finance and Government Services. Any other British Columbians interested in influencing next year’s budget have until October 18 to do so by clicking here.

Taxation has three major purposes: raising government revenue, redistributing wealth, and discouraging “bads.”

The first is the most obvious. Taxes — “the price we pay for civilization,” in the words of Oliver Wendell Holmes Jr. — provide for such crucially important public goods as health care, education, welfare, parks, and transportation infrastructure. However, cuts that have taken place for more than a decade here in BC have left us unable to adequately deal with the urgent problems we now face as a society, like climate change, child poverty, and rising health costs. The only feasible solution — an unpopular solution to be sure, but a necessary one — is to raise taxes.

This directive leads to two reasonable follow-up questions: which taxes, and on whom? To answer, we must consider taxation’s other two purposes.

In order to effectively achieve their redistributive aim, taxes must be progressive, that is, they must apply at a higher rate to the rich than to the poor. In BC, however, according to a report by the Canadian Centre for Policy Alternatives (CCPA), the rich pay a smaller portion of their incomes in overall taxes than the poor, as a result of the government’s increasing reliance on regressive measures like sales taxes and MSP premiums. In order to solve this problem, corporate and upper-tier income taxes must be increased dramatically. Even middle-tier income taxes will probably have to be increased moderately. And while it may not be practical to eliminate regressive taxes entirely (in the short term anyway), they can at least be lowered — provided that revenue is recouped via a progressive tax shift.

Finally, taxing “bads” rather than “goods.” Taxation can be used to introduce socially beneficial incentives, one example of which is BC’s carbon tax. There are two major problems with our carbon tax, however (as well as several other minor problems). First, it is not nearly high enough to effectively get us where we need to go in terms of greenhouse gas emissions. And second, according to another CCPA report, it is regressive, thus violating the redistributive criterion for good tax policy. Fortunately, both problems are easy to fix. All we need to do is to continue raising the carbon tax rate year after year — probably quite drastically. And the CCPA recommends devoting fully one half of carbon tax revenue to a tax credit for people with low and moderate incomes (considerably more than what we currently do), so that on average, they would actually gain from carbon taxation.

I urge you to deal with taxes in the 2013 budget in a way that is mindful of the three purposes I have outlined. Over the long term, I agree with the CCPA that the government must set up a Fair Tax Commission to gauge the public’s true priorities on how and why we raise revenue. Only then will we as a province gain momentum on the road to equity, sustainability, and the common good.

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