Wednesday, October 7, 2009

Compounding regressivity

Lobbyists and media outlets, each serving special interests, push North American governments to favor regressive taxation. Unsurprisingly, the tax systems, rife with avoidance opportunities, burden the middle and lower classes more heavily than the rich and the super rich.

In 2007, Washington Post reported:
Warren Buffett slammed a system that allows the very rich to pay taxes at a lower rate than the middle class. Buffett cited himself, the third-richest person in the world, as an example. Last year, Buffett said he was taxed at 17.7 percent on his taxable income of more than $46 million. His receptionist was taxed at about 30 percent.

British Columbia is leading Canada in the shift away from a progressive tax system. Personal and corporation income taxes are decreasing while consumption taxes, tuition fees, permit and other user fees, medical premiums, road tolls, property, parking and carbon taxes and other regressive assessments rise. Little wonder because well funded advocates promote laws and policies that encourage growing disparity of income and tax burdens.

Trade and industry groups, political action committees, think tanks, foundations and lobbyists maneuver behind the scenes, acquiring political loyalties and manipulating media content to promote client agendas. Radical and alternative voices are discouraged from the public stage, as the RCMP security forces now demonstrate with its intimidation of 2010 Olympics dissenters.

Each regressive tax move compounds social damage to Canada. There is cumulative effect, too little considered. The British Columbia government, by imposing HST as it plans, takes $2.5 billion from the pockets of consumers and returns $2 billion to big business. By extending application of its consumption tax to a broader range of necessities, the Province adds burden to average and lower income citizens.

Liberal politicians claim that a "pass through" of business savings will result in lower prices but an unsupervised and uncompetitive supply side will not respond that way. Canada, as discussed here, has the weakest laws against price fixing and business corruption in the developed world.

It is interesting to note that, in a major American case, participants in an international agri-business price fixing case met in Vancouver to plot their actions because they worried about offending American laws if they dared to meet in the US. (This is the case underlying The Informant!, a current and factually accurate Steven Soderbergh movie.)

Not to be left out of the right wing shift, Canada's Conservative Party plans a major contribution to regressive taxation by hiking payroll taxes.

Economist Dale Orr examines Employment Insurance premiums and deficit reduction. He notes the Harper Conservative Government, while pledging to "not raise taxes," is planning substantial increases to Employment Insurance premiums, collected from employers and workers:
An increase in EI premiums, from the employees’ perspective, is a tax on working. From the employer’s perspective, EI premiums are a tax on hiring. Over the longer term, higher EI premiums lead to a level of employment lower than otherwise.

An increase in EI premiums is not only one of the most economically harmful taxes, it is also one of the most perverse. It affects lower income workers relatively more heavily than higher paid workers since EI premiums are not collected on earnings over a threshold.

This is another considerable step of regressive taxation in Canada. We see it at every level: federal, provincial and municipal. The burden of taxation falls not on those best able to afford it, but on people with the least political influence. In our society that means the poor and the unexceptional middle class. These are also the people least able to shelter income from tax, by using credits, deductible savings plans, corporations, trusts, off-shore havens, etc.

Considering the decision to raise employment taxes gave me this idea. I make it available to Conservatives without demand for even a meager consulting fee.
  • EI premiums are collected from the employed to fund insurance that benefits workers who become unemployed. It is a relatively simple concept that forms part of our social safety net.
  • Someone might ask why corporations that are too big to fail, don't pay into a similar fund to provide benefits when their results falter.
  • For example, the Royal Bank - obviously too big to fail - could pay TBTF premiums against the day when its good fortune turns sour. So too could other favorites of Ottawa - the new improved auto companies, Ottawa advertising agencies and Bombardier come to mind.
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