The Vancouver-based Fraser Institute, normally a proponent of lower taxes, is sounding an alarm about the growing ranks of those in North America who have become tax-exempt.
“Democracy can’t function properly when a sizable majority of tax filers are exempt from the cost of their decisions because they pay little or no direct taxes,” warns Jason Clemens, the institute’s executive vice-president.
Clemens, along with Niels Veldhuis and Robert Murphy, recently wrote Tax Payers and Tax Takers, an intriguing report outlining a problem of creeping progressiveness in tax policy.
The 64-page paper documents the dangers inherent in governments offering a continuous array of bigger and better tax goodies.
Those who don’t pay the freight don’t really care how government doles out cash. Inevitably having fewer watchdogs leads to sloppier public spending.
In the U.S., says the report, the trend has led to people “constantly demanding more government services and redistribution, regardless of the efficacy of the specific programs.”
Indeed, the large number of tax-exempt Americans serves as “a cautionary tale for Canadians, as we may be moving down a similar path.”
In 2011, the U.S. Tax Policy Center estimated 46 per cent of American tax filers were income-tax exempt.
In Canada, 37.7 per cent in 2010 paid no federal income tax, up from 32 per cent in 2000.
Of course, governments have an incentive to dole out tax concessions to groups they’re courting. Grateful voters are inclined to reward parties that exhibit such beneficence.
The report expresses concern about several Canadian government programs.
• The Working Income Tax Benefit, introduced in 2007 — one year after Conservatives took power — aims to assist low-income workers. It provides an incentive for jobless welfare recipients to get a job. The Harper government has expanded the $480 million program so it now costs more than $1 billion. In the U.S., warns Clemens, a similar program has been expanded to the point where it’s now effectively a “middle class benefit.”
• The Child Tax Credit, introduced in 2007, costs Canadians more than $1.5 billion, delivering tax-free monthly payments to parents with children under age 18. (As well, Conservatives have introduced tax benefits for children in sports and arts programs.)
• The Basic Personal Exemption, dating back to 1913, is a designated amount of earned income sheltered from taxation. The exemption, notes the report, has been increasing since 2001, resulting in more low-income earners not paying federal income tax.
On the other hand, the report says, Canada’s GST serves to force lower and middle income earners to contribute to overall taxes to a greater extent than if there were no GST.
By contrast, the same group of earners in the U.S. does not contribute by way of a national sales tax since there’s no GST.
Americans leave most of their tax bills to be paid by high income earners.
In fact, says the Fraser Institute report, the U.S. depends more on its big earners for public revenues than does any other developed country.
No doubt that’s why, in the U.S., Republicans recently fought Democrats so vigorously on the issue of whether wealthier Americans should pay even higher taxes to address their so-called fiscal cliff.
The Fraser Institute report makes good sense, applauding the concept of progressive taxation but warning that democracy requires as many folks as possible to pay a fair share, however small the contribution.
Original Article
Source: canada.com
Author: Barbara Yaffe
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