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"From the editor's desktop" by William Watson "The Alliance's Solution 17" by Monte Solberg In a bold policy move, the Canadian Alliance earlier this year proposed that the federal government adopt a “single-rate” income tax. More popularly known as a “flat tax,” the proposal would see all Canadians pay a marginal rate of 17 per cent. A hike in personal exemptions to $10,000 and the introduction of a $3,000 exemption per child would provide a significant tax cut even to those who were already in the lowest, 17 per cent income tax bracket. But taxpayers in higher brackets would benefit, in addition, from the reduction in rates. Policy Options asked the plan’s co-author, former Alliance Finance critic Monte Solberg, to explain the reasoning behind it. "Not just 'single'-minded" by Ken Boessenkool and Mark Mullins The Canadian Alliance does propose a single-rate income tax, but that is just one component of its detailed fiscal plan. Unlike the federal Liberals, who by 2004 will have increased federal expenditure by more than a third, the Alliance will impose strict limits on new federal spending. This will allow it to devote three-quarters of the expected fiscal dividend to tax cuts, and at least $6 billion a year to debt reduction. New legislation will require that unforeseen revenue increases mainly go to debt repayment. The single-rate income tax will increase economic efficiency but it will also contribute to greater fairness in the taxation of families. Finally, the Alliance will increase economic growth by lowering corporate taxes in general and by equalizing them across industries, so that the high-tech and service sectors pay no more than the 21 per cent that other sectors currently pay. "The Alliance's flat tax: Are these guys serious?" by Neil Brooks The Canadian Alliance’s single-rate income tax is regressive, incoherent, inefficient and inconsistent with widely shared Canadian values. It’s regressive because it would give the largest tax cuts and the biggest resulting increases in income to high-income Canadians. It’s incoherent because no known theory of taxation can justify a constant marginal rate. It’s inefficient because there is very little evidence that re-jigging tax rates will increase the rate of economic growth. And it’s inconsistent with widely shared Canadian values because it rejects the very idea of community, putting in its place a mean-spirited (and thoroughly discredited) political philosophy. "Three more views of the flat tax" conference call with Pierre Fortin, Jonathan Kesselman and Dale Orr To get three more views on the flat tax, Policy Options’ editor William Watson organized a discussion among three economists who have studied the flat tax closely but are not quite so involved in the current debate as our earlier participants. Dale Orr is Senior Economist at WEFA, Inc., and Chief Economist, Canadian Services. He did a background paper for the Reform Party on the budgetary and macroeconomic impact of its single-rate- tax proposal. Pierre Fortin, of the Université du Québec à Montréal, has written a detailed study of the flat tax in the Canadian context. Jon Kesselman of the University of British Columbia is about to publish an in-depth assessment of the Alliance’s flat-tax proposal for the Institute for Research on Public Policy. Here is an edited transcript of their conversation, which took place Sept 11. "The 'Tax dollars are scarce, and should only be spent on the most needy' fallacy" by Nicholas Rowe Commentators debating what to do with the surplus spend a lot of time arguing whether to cut tax rates or increase benefit rates, apparently without realizing that what truly matters in terms of fairness and incentives is the difference between the taxes a person pays and the public benefits he or she receives. Call this difference “net taxes.” A universal child benefit would have the same effect on all parents’ net taxes, and it wouldn’t matter whether the benefit were delivered in the form of a tax cut or a cheque from the government. Making the benefit universal would have the advantage of equalizing marginal net tax rates, and therefore minimizing the disincentives associated with net taxation. "Hands off the GST!" by Andrew Kosnaski The GST may be the most hated tax in the land, but it is a consumption tax, and consumption taxes favour economic growth by eliminating the bias against savings inherent in an income tax. But even more importantly, large cuts in taxes are risky. The economy is unlikely to continue to grow at more than twice its historical rate of growth for much longer. With the baby-boom generation creeping ever closer to retirement, a more prudent fiscal plan would be to keep the GST and reduce income taxes and government debt, thus preparing for the harder times that are bound to come. "20 years of tax policy in Policy Options" This year marks Policy Options’ 20th anniversary. To celebrate we are running excerpts from the archives. In this issue, to accompany our cover story, we see how different Policy Options’ writers have looked at Canada’s fiscal policies over the years. "Policies for an Internet labour market" by Peter Kuhn The Internet is rapidly becoming a favoured medium of both employers and job-seekers. It seems likely to reduce frictional unemployment, increase productivity and, because it will force compensation to be tied more closely to productivity, it may increase wage inequality. What should policy makers do in the face of this important new technology? They should understand that traditional help-wanted indexes, which focus on newspaper job ads, are obsolete. They should instruct their statistical agencies to look for new measures of aggregate job search. And, with the Internet now providing job-matching services so cheaply, policymakers should reconsider government’s role as a provider of these services. "Our governments should stop freezing out smaller Canadian e-Recruiters" by Alice Nakamura and Theresa Pugh Recruiting services (e-Rs) are an increasingly common way of bringing employers and job-seekers together. Large, foreign services have significant advantages over Canadian services and many Canadian job-seekers end up having greater exposure to US jobs on offer than Canadian ones. It is especially harmful, then, that government-run and -subsidized Canadian e-Rs often do not feature—or even provide—links to smaller Canadian non-profit e-Rs, such as Career.Owl.ca, a low-cost university-based service launched by Canadian university professors, including the first author. "The quiet hi-jacking of corporate Canada" by Willard Z. Estey The departure of most of NOVA corporation’s senior executives from its Calgary headquarters to new offices in Pittsburgh raise serious questions about Canada’s ability to compete successfully in the world market. If NOVA really does have to be closer to its customers, that is one thing—though many other corporations that sell mainly in the US market continue to be headquartered overseas. But if the real reason for the move is simply that Canadian income and profits taxes are too high, then a wholesale re-examination of Canadian economic policy is required. "Health effects of New Right policies" by Dennis Raphael Across a wide range of social and economic indicators, the United States performs much more poorly than other industrialized countries, Canada included. Many observers argue that the root cause of its poor performance is its greater inequality of income and wealth. Since 1994, inequality has been rising in Canada. Do Canadians really want to reinforce this trend by adopting New Right policies? "Getting treaty talks off square one" by Bernard Schulmann Negotiations currently underway between First Nations and the Governments of British Columbia and Canada suffer several fundamental flaws that explain why little progress has been made despite seven years of very expensive work. One is that there is little or no agreement on existing aboriginal rights. A second is that too many negotiations are taking place simultaneously; a third that the agreements that are made generally cannot be understood except by legal specialists. The entire process needs to be re-thought. "Canada's other brain drain: The continuing exodus from Quebec" by Matthew Stevenson The Canada-US brain drain is a hot political topic these days, even though the southward migration of Canadians is low in historical terms. By contrast, although the emigration of Quebecers to other parts of the country continues apace, almost nothing is heard about it. Over the last 40 years, the cumulative net loss is now more than 610,000 people. In absolute terms, the decade-by-decade loss has exceeded the southward migration of Canadians to the US. A comparison with Ontario’s experience over the same period suggests the root of the problem is Quebec’s language laws, constitutional policies and relative economic decline. Such a large loss of population is bound to have had harmful effects both on the province’s economy and on its viability as a distinct society. "Pied pipers through time: Notes of a demographic inconvenience" by Neil Cameron Throughout history, changes in different populations’ growth rates have caused large swings in their economic and political fortunes. However clear their effects, the causes of these changes have often been hard to figure. Now, with the proliferation of pharmaceutical fixes for reproductive problems, population changes of almost every kind will be at the mercy of personal preferences. "To honour Canadians: Fewer awards, more fuss" by William Galbraith Conrad Black’s contretemps with the Prime Minister over his receipt of a British peerage gives us an opportunity to re-consider the role of honours in Canadian society. In general, we should give fewer awards and make a greater fuss over them. The Order of Canada should not be available to public servants (who should have their own separate award) and, like virtually all our awards, should be given less frequently than it is and only for true excellence. Considerations of demographic balance must not be allowed to enter the determination of awards. Finally, Canadians should be permitted to receive foreign awards and even titles. Book Review: James Allan Evans reviews How We Got Here: The 70's: The Decade that Brought You Modern Life-For Better or For Worse by David Frum Sorry, the summary of this article is not available. |
