‘Anti-tax’ accusation is simply wrong

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Appeared in the Toronto Star, August 30, 2016

A recent column by the Toronto Star editorial board had some choice words about a recent Fraser Institute study finding that the total amount of taxes paid by the average Canadian family now consumes over 42 per cent of income, more than the 38 per cent spent on food, clothing and housing all combined.

Unfortunately, the Star labelled the Fraser Institute “anti-tax crusaders” who help drive the narrative that “any tax is a bad tax.” This could not be further from the truth.

We need taxes to fund important government services, critical both to a well-functioning economy and more generally, civilization. But there’s a point when a larger, more interventionist government, combined with a heavier tax burden, can stunt economic growth and social outcomes (better health, improved education, lower crime, etc.), or achieve those outcomes only at great additional cost.

For instance, government spending becomes unproductive for the average Canadian when it goes to special subsidies to businesses, otherwise known as “corporate welfare.”

As Canadians, the questions we should ask are: what’s the right size of government and mix of taxes to fund it, and are we getting the best value for what we currently pay in taxes?

Beginning with the right size of government, research shows that economic growth and social outcomes generally improve as government spending increases to between 26 per cent and 30 per cent of gross domestic product (GDP). Once spending surpasses 30 per cent of GDP, economic growth declines.

In Canada, total government spending is now approximately 40 per cent—much higher than what the empirical evidence shows to be optimal.

But it’s not just the level of taxes that matters; the mix is important, too, since some taxes (such as personal and corporate income taxes) impose much greater economic damage than others (such as taxes on consumption).

Consider the now infamous debate about the GST rate cut back in 2006. At the time, Fraser Institute researchers argued strongly against cutting the GST. Indeed, despite popular support for the cut, the economic evidence clearly showed that the GST was the wrong tax to cut. A much better course, and one that would have encouraged greater economic prosperity for Canadians, was to cut personal and corporate taxes—a policy move, incidentally, past federal Liberals have supported.

Which brings us to the final question: given the current tax burden, are Canadians getting the best value for their money? This is an issue the Star recognizes when it rightly notes that “we ought to consider what we get in return [for taxes] before deciding whether or not it’s a bad thing.”

Ironically, that’s the entire point of our study.

But to make an informed assessment, you must have a complete understanding of all taxes you pay. Unfortunately it’s not so straightforward because the different levels of government levy such a wide range of taxes, some of which are visible, while others—including corporate taxes—are hidden.

Therein lies the value of our calculations. An informed citizenry that understands taxes consume 42 per cent of household income can hold government more accountable for the money it spends and continue a public debate about the overall tax burden—and whether we’re getting our money’s worth.

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