Poverty Down, Taxes Down, Outrage Up

Commentary, Poverty, Peter Shawn Taylor

Never having seen the headquarters of the stridently leftwing and perpetually upset Canadian Centre for Policy Alternatives, it’s diverting to wonder what it might be like. My own view is that it looks something like the inside of a Second World War Japanese submarine whose crew doesn’t know the war is over. Every once in a while they surface, take a quick look around and fire off another ancient policy torpedo before diving back down to the depths to continue a struggle that actually ended a long time ago.

This semi-tragic, semi-hilarious ritual was repeated yet again with the latest salvo in the CCPA’s Growing Gap Project series of papers which attempts to foment outrage over the state of poverty in Canada. The only trouble being that poverty keeps disappearing faster than the CCPA can foment.

In truth there is substantial good news about poverty in this country, and it has finally gotten broad recognition following the release of a C.D. Howe Institute report by academic John Richards in October, even though the figures he uses were first released by Statistics Canada back in May.

Poverty among elderly couples has disappeared to the extent that, at 1.6%, it might be considered a rounding error. For individual seniors, the rates have dropped by more than half in the past 25 years. Among single parent families, typically the most vulnerable to poverty, the rate of low income has fallen from the 40% to 50% range to 26% in 10 years. The rate of child poverty has similarly nosedived. About the only categories not on a steady downward trend are traditional two-parent families and single working age males.

It was into this happy environment that the leaky CCPA policy submarine resurfaced recently to launch its latest shot of irrelevancy. In Eroding Tax Fairness: Tax Incidence in Canada 1990 to 2005, author Marc Lee takes on the heroic task of convincing Canadians that they are grotesquely undertaxed and that only a massive increase can save us from chaos. He’s not joking.

Lee claims our tax system has become far more regressive since 1990. He finds that lower income brackets now pay an equal or higher percentage of their income in taxes as rich folk do. Lee lumps all forms of income, including inheritances and corporate earnings, into his pot and refers repeatedly to the lack of “fairness” in our system. But this ignores the fact that across the board, rich and poor, Canadians are doing better now than they ever have. Calls for more taxes on rich Canadians, inheritances or corporate profits are not arguments aimed at helping the less-fortunate or improving efficiency, but exercises in envy.

What changes we have seen at the rich and poor ends of the tax schedules are actually the result of a deeper understanding of the importance of incentive effects. At the bottom income brackets, governments are now mindful of how claw backs and taxes create disincentives that may dissuade welfare recipients from seeking work. So their tax rates have been smoothed to encourage employment. At the high end, we know surtaxes and other punitive measures create excess burdens which distort the work effort of our most productive citizens.

Besides, the personal income tax system is still plenty progressive. According to Statistics Canada the richest fifth of Canadian families paid almost 60% of all personal income taxes in this country in 2005. That’s up from 50% in 1980.

And despite the recent trend towards lower personal and corporate tax rates, governments are hardly starving for funds. Over the past 10 years, Canadian corporate taxes have been cut several times yet federal corporate tax revenue has nearly doubled (it was $38 billion in fiscal 2006).

The CCPA’s ultimate goal is to “to raise Canadian tax revenues from one-third of GDP to … one-half.” The only trouble with this prescription for a nearly 50% increase in total tax take is that no one outside of the CCPA seems interested in promoting it. Even Liberal leader Stéphane Dion is promising to chop corporate taxes. All of which leads Lee to complain that cutting taxes has become “an easy political move.”

Yet for all the eye-stretchers and chain-yankers that Lee jams into his report, perhaps the most surprising thing is that he lacks the conviction to support his own alleged beliefs. Having spent the entire document decrying how tax cuts for the rich have turned our tax system against the poor, he then devotes a brief paragraph to Prime Minister Stephen Harper’s GST cut.

Consumption taxes like the GST are among the most regressive taxes since they fall most heavily on low income Canadians who consume a much greater percentage of their income than the rich do. You’d think the CCPA would cheer any cut to the GST as a progressive move. No such luck. Lee dismisses Harper’s strategy as being “driven by political factors” and offers him no credit whatsoever. This, more than anything else, exposes the CCPA’s crusade as being utterly ideological and wholly uninterested in the real world.

Poverty is in decline. Canadians have never been richer than they are today. Tax revenues are up because tax rates are down. The economy is thriving. As far as the CCPA is concerned, the news can’t possibly get any worse. Dive, dive, dive.

Peter Shawn Taylor is a freelance writer based in Waterloo, Ont.