(No, this title is not “Orwellian”, but the consequences are!)
As we close to within one week of what may well be the most significant election of my lifetime, and possibly in Canada’s history, I am continually confronted in discussions by our confused and conflicted political positions around money, where it comes from, and where it goes. This includes massively widespread confusion and contradiction about taxation.
Chapter two of my book, Salvaging Capitalism / Saving Democracy, entitled R.I.P. Middle Class talks about wealth transfer, and Chapters three and four specifically talk about the true role of money, and the irrational love of money and worship of those who have money – regardless of how they got it.
I spent far less time on taxation – a nasty and unpleasant topic for most of us. In hindsight, I see that as a regrettable omission, but in part a result of my limited understanding at that time. I have learned a lot more since publishing that book, both through additional reading, and through feedback and discussion of topics in the book.
Why is this significant during an election? Because what politicians say about taxation and what they actually do has massive impacts on our well being and on our long term future. And when things go well in the economy, politicians are quick to take credit. When things go badly, it is ALWAYS the fault of external factors they could neither foresee or control – or so they would have us believe.
Today, October 9, 2015, Canada is 600 Billion dollars in debt. And that debt is today some 151 Billion dollars higher than it was in 2006. That is an increase of about 31%, very nearly one third – by a government that promotes itself as fiscally competent.
EVERY DAY, we Canadian taxpayers collectively pay about $160 Million in interest payments on this debt, mainly to the commercial banks! If you are a family of four, that works out to $18 per day out of your pocket, about $6600 per year just in interest payments, and the Harper Government is responsible for the last 31 percent of that. Put your (fully-taxable) child care benefit in that context! Give with one hand and take away with the other.
Now of course you don’t see that $6600 taken from your pocket directly. You see it in government services you just don’t get, whether that is decreased money for healthcare and education, less money for government scientific research, less aid for other countries, or a poorly equipped military. That part is all about priorities.
So how did we end up with this debt, and why? Some claim it is because we are living beyond our means, and have to learn to live with less. The international financiers pressed the Chretien/Martin governments hard on this, and some of the resulting cuts to actually balance the budget were pretty draconian and poorly thought out..
When it comes to our environment, there is something to the “live with less” argument because our current rate of resource consumption and environmental degradation is not sustainable. But in my experience, those who preach constraint are generally the worst in actually practicing it. Conspicuous consumption, also called “keeping up with the Joneses” became a hallmark of life in the twentieth century.
And the living-beyond-our-means argument also assigns that mystical character to money that Chapters three and four of Salvaging Capitalism / Saving Democracy debunks. Money has no function or intrinsic value except as a medium to facilitate the exchange of goods and services.
Governments around the world, together with some mysterious power called “market forces” conspire to mess with the money system to advantage themselves over others on a daily basis – including schemes that are outright theft – such as the Libor scandal of 2012, or seriously distort trade through currency valuation. But that is tangential to the discussion of taxation and debt.
So returning to deficit, debt, and taxation – and at the risk of stating the obvious – we need to define some things, because for many these ideas are hazier than they need to be.
One confusion is between debt and deficit. Most of us in our daily lives understand debt. When we want to buy something and don’t have the cash in the bank, we go into debt. We put it on a “credit” card, or take out a loan. We increase our debt. (Interesting how marketers use Spin words to deliberately confuse us. If those first magic pieces of plastic had been called “debt” cards, one wonders if they would have caught on as fast, or in such a massive way.)
So our total debt is the sum of all our future obligation to pay, all those I.O.Us, from our car loan, to our mortgage, to our education loan, to the “debt” card payments that we owe for “stuff”.
We don’t tend to use the term “deficit” in our lives, but most of us understand that if we spend more money than we take in, we dig ourselves into a bigger hole. We either spend less, or we have to make more. So people take a second part time job, work overtime, or even steal to try to bring in more money. The lack of balance between what we spend and what we take in is either a surplus ( we have money left over at the end of the month) or we spend more than we take in, and run a deficit. So even though we don’t use the term, we do often run a personal deficit – sometimes for good reasons, and sometimes for not so good reasons.
Governments don’t make a wage, and can’t take a second job (although they do often steal and extort). Governments get their money by taking some of yours. They then give it back – in theory – by providing services (such as healthcare, police, border security), or building and maintaining infrastructure (roads, bridges, utilities, etc.). Governments at all levels get their money by a combination of taxes and user fees. Here is where the rubber hits the road, and where ideology, monetary theory, and worldview make a huge difference in the approach.
More progressive governments prefer “progressive” taxation. We are all familiar with the concept of tax brackets. The higher your tax bracket, the greater percentage of your “income” you pay. This is based on (1) religious teachings and (2) clear evidence that money has – as German economist Karl Marx put it “…the occult ability to add value to itself.” – i.e. The rich get richer not by effort but because money “grows” in and off itself.
Progressive taxation then, is based on the notion that we have a moral obligation to help those less fortunate than ourselves but is also a pragmatic attempt to re-balance wealth distribution, which in the absence of such measures will very quickly concentrate into the hands of a very few, leaving the bulk of the population totally landless and subservient – a return to the feudal times that western democracies presumably left behind a couple of centuries ago, and from which some countries in Africa and the Middle East have yet to escape. This is the so-called “wealth inequity” we occasionally hear about but don’t really understand.
The middle ground would be a so-called “flat” tax. This means that the percentage of income you contribute to government coffers is a constant. For example, if the rate was 10%, for every $10 you took in, you would pay $1 in tax. This seems very simple, and intrinsically “fair”, but makes the assumption that everyone also benefits equally from government services – a notion that does not stand up to the most cursory examination of reality. Those most disadvantaged in our society get little benefit from superhighways, modern airports, and similar infrastructure.
The flip side of progressive taxation is “regressive” taxation. Such schemes are never called regressive by their proponents, but the effects are clearly to deliberately put (or leave) more money in the hands of the already wealthy, or to extract a disproportionate percentage of total income from those who make less.
This is the most insidious form of taxation, and one very much in favor with right-wing governments, in part because most of the people who pay this tax don’t understand they are being gamed by the system. Consumption taxes like Mulroney’s GST fall in this category, for the simple reason that lower and middle class consumers spend most of their money, thus making it subject to consumption tax. The wealthiest hoard most of their money, investing it, banking it off shore, and buying “stuff” in jurisdictions where there is no consumption tax. So as a percentage of income, the wealthiest contribute very little to consumption taxes.
Problems are compounded by lower rates of taxation on money made from investments compared to money from wages, together with hugely complex systems of deductions that keep an army of tax accountants employed.
So when the Harper Government announced income splitting and a child tax credit, their opponents had difficulty having people understand that this plan represented “regressive” taxation, disproportionately benefiting those in higher tax brackets.
People tend to see only the apparent direct impact of such schemes on their immediate family situation, and don’t factor in long term costs like the annual cost of servicing Canada’s debt. Because when we implement regressive tax regimes there is only one possible outcome – the rich get richer and the poor get poorer!
And if you make $100,000 – $150,000 a year and consider yourself among the “rich getting richer” you have no idea what RICH means, or what is really happening to your slice of the pie. (see links below.)
Just as Mulroney did, at the same time as Harper cut taxes for the wealthiest, he continued to spend like a drunken sailor on things of little or no benefit to ordinary Canadians and to cut money for research, social programs, and transfers to the provinces. The result is shortfalls that then force local and provincial taxes to go up. It is important to recognize that such changes are ideological and political – not based on what is ultimately best for the country. That is very clear from my reading of Harper’s thesis – written in the right-wing school of economics at the University of Calgary.
This tax-cut-and-spend places a burden disproportionately on some provinces and benefits others. For example, unilateral short term changes to Healthcare funding benefit Alberta and provinces with a younger population and put a huge additional burden on provinces like Ontario, already reeling from the loss of 400,000 manufacturing jobs under Harper. This tax policy is purely political, buying friends and punishing “enemies”. It is wedge politics at its worst, and can only lead to more of a downward spiral in our total economy and increased wealth inequity. We hear this last term thrown around a lot, but just how bad is it?
Here are two short videos, the excellent original based on U.S. data and then a later adaptation showing the situation in Canada. Unless you are one of the 87 most wealthy families in Canada, you owe it to yourself, your family, and your country to view and think about these short videos before you vote.
Wealth Inequality in America (length 6.23 minutes)
Wealth Inequality in Canada (length 4:14 minutes)
Of course there are lots of “Cheerleaders” (as defined in my book) for an alternate point of view. This is the usual right-wing spin from places like Forbes.com, home of Forbes Real-Time Billionaires site. Just gotta know who made $292.71 Million in the market today!