Conservatives want to make taxes less progressive

Buried in all the hoopla and drama of this weekend’s Conservative Party policy convention was a policy resolution that spoke volumes about how the Conservative Party views taxes and economic equality.

The resolution said, "We encourage the Conservative Party to move to a less progressive tax system by reducing the number of personal income tax brackets."

It may have received support because many Canadians think the rich are paying too much tax.

But the reality is that the top 1% actually pay less of their income in all forms of taxes than the bottom 10%. Why? Tax loopholes. Our system is currently riddled with them. They make our tax system very complex so high priced tax advice is usually required to find them. Many of them are only available to those who get their income from investments. So these loopholes (or tax breaks) disproportionately benefit the rich. 

Most taxes such as sales and property taxes are regressive. The income tax system is still progressive, and helps to counter the effect of other taxes to maintain some kind of fairness. But because of earlier cuts to the top marginal rates made by previous Liberal governments, it is having a hard time maintaining fairness.



If you look at a graph of what percentage of income each decile group pays in taxes it looks like a hill, with the middle income groups paying the most and the poorest and the richest paying the least. If the income tax system is made less progressive, the rich, who already pay less of their income in all forms of taxes, will pay even less and the tax "burden", as the Conservative spin doctors call, will fall even more to the middle class.  

Why would Conservatives want to hit the middle class with an even greater share of taxes? Do they really want to increase income inequality? Maybe so, in the mistaken belief that this would be good for the economy.

Classical economic theory holds that tax breaks for the rich and for corporations will provide them with more money that they can then invest. Supposedly this creates jobs.  The benefits then, theoretically, trickle down to the middle and lower income groups.

This theory has never worked.

In the real world, much of the money the rich and corporations gained from tax cuts is being socked away, often in tax havens. The amount of Canadian money in tax havens is at an all-time high. One of the main reasons corporations are not investing is that demand for products and services is weak because of stagnant incomes of middle and lower income Canadians. Income inequality and too much speculative, rather than productive investment are at the root of our economic malaise.

Good tax policy is one of the best ways to getting the economy back on track.  And here’s how you start:

  • close tax loopholes that unfairly benefit the rich
  • make taxes more progressive including restoring higher rates on top income brackets
  • tackle tax havens
  •  implement financial transaction taxes that would discourage short term speculation
  • boost anti-poverty tax measures such as the National Child Benefit and the Working Income Tax Benefit

These tax policies would help to close the income gap, boost consumer demand and redirect investment to job-creation and production.

Investment isn’t just the purview of corporations and the super-rich.

Improving the Canada Pension Plan would not only help ensure against poverty when workers retire but it would raise money that could be productively invested. Indeed the public CPP has out preformed most private investment funds. Tax revenue invested by governments in infrastructure and services such as education, child care and health care would create more jobs and improve our quality of life even more efficiently than most private investment.

One interesting part of the Conservative Party resolution goes on to say, "Canada’s tax system must be built on a foundation of fairness. In this regard, we encourage the government to continue to close loopholes such as the use of offshore tax havens which erode the Canadian tax base and allow companies to avoid paying Canadian taxes."  

This is something on which we would agree. Indeed it is encouraging that our Tackle Tax Havens campaign seems to have raised awareness about the negative impacts on the global economy and gained broad public support.

Finance Minister Jim Flaherty recognized that in his last Federal Budget.  It is encouraging that the Conservative Party policy now recognizes it too.