The Moncton Times and Transcript – No reason for high taxes
The Chronicle-Herald – More pros than cons to tax cuts

By Brian Lee Crowley

Stephen Harper’s tax cutting platform is under attack from Paul Martin because Canadians (unlike Americans, the subtext runs) care for each other. That costs money. Ergo, Stephen Harper is a bad Canadian because he doesn’t care enough about others to keep our tax rates high enough to pay for this generosity.

The argument sounds plausible, and certainly gives the average Canadian that warm glow of moral superiority over our brash aggressive neighbours to the south. But while the argument may appeal to our prejudices, that doesn’t make it true just appealing.

It is not obvious Americans are less caring than Canadians; they are, for example, significantly more generous in their giving to charitable organizations, many of which have proven more effective than the state at helping those in need. Thus lower American levels of taxation might well not reflect a less-caring society, but rather people who want to choose for themselves where and how to help.

Remember too that while U.S. tax rates are lower, those rates are levied on incomes that are, on average, much higher, because the American standard of living is 20-30 per cent higher than ours. By taking a smaller share of a much bigger pie, U.S. taxes traditionally yield, in absolute terms, one of the highest, if not the highest, amount of tax dollars per capita in the world.

So the really interesting question is: what do we get for our money, and does that value justify our level of taxation?

How about health care, for example? Surely health care spending explains the difference between Canadian and U.S. levels of taxation. Let’s see – Canada spends about seven per cent of GNP on publicly-financed health care, whereas the U.S. only spends seven per cent of GNP on publicly-financed health care such as Medicare and Medicaid.

Now we could certainly have an interesting discussion about who gets the better value for that seven per cent of our respective national incomes. But that’s not the point. Health care spending doesn’t explain or justify higher levels of Canadian taxation compared to the U.S.

And there are lots of countries that spend fewer public dollars on health care while getting better age-adjusted health outcomes. Spending more, and keeping our taxes high only puts off the day when those who run the system are called to account for high costs, and bad service.

How about that classic piece of Canadian “social solidarity,” regional economic development? It’s a well-established proposition in economics that, over time, lagging economies catch up with leading ones (such as Atlantic Canada or Manitoba catching up with, say, Ontario). Natural economic processes are the cause, such copying innovations from leading economies for free, and leveraging lower wages and other costs into a competitive advantage that attracts investment and growth. The normal rate of “convergence,” as it is known, is two-to-three per cent per year, and this occurs without any special public spending or other public policy intervention.

Ottawa, though, tried to hasten the process in regions like Atlantic Canada.

A few years ago at my institute we did the following calculation. We took net federal spending in the region (that’s total federal spending in the region minus federal taxes paid here) over the previous 30 years and then asked, if instead of spending this money on regional development, subsidizing seasonal work and inefficient provincial governments etc., we had put it in an account and invested it in U.S. 90-day T-bills, how much would be in that account? The answer was over $1-trillion, enough to retire the entire national debt of Canada and still have almost $500-billion left over.

What did we get for that money?

A rate of economic convergence with the rest of country of less than half of what you would expect if we had done nothing at all, and a rate well below what this region was achieving before “development” spending was ramped up in the 1960s and 1970s. And the Auditor-General thinks a missing $100-million is a scandal. Go figure.

The U.S. has no regional development programs, no equalization, no EI for seasonal workers. Yet lagging regions there close the prosperity gap with leading regions more quickly than in Canada. And no, U.S. defence spending is not regional development spending in disguise. Count defence research spending in the total, and rich states get disproportionately high levels of military spending, not poor ones.

Speaking of the military, the U.S. is the world’s policeman, a cost we do not bear in our taxes. In fact, we have the second lowest level of military spending in NATO (we’re pipped at the post by that military powerhouse, Luxembourg) because we shelter under the U.S.’s military protection and take a brazen free ride at their taxpayers’ expense.

There may be good reasons why our taxes are higher than American taxes. I just haven’t heard them yet.