Wednesday, April 15, 2009

Note to Ignatieff: How a tax increase could be stimulative

Photo: Harper implementing my budget amendment to increase GST to 7% over two years.

Here was the suggestion that I made three months ago, on two prudent measures to stimulate Canada’s economy.

Friday, January 30, 2009
Okay. Here’s my amendment that will further stimulate the economy, protect the vulnerable AND cut the budget deficit in half

Harper’s budget is being panned by Canadians across the political spectrum, and for good reason. It's a hodge-podge of superficial measures that will lead our country recklessly into debt. Canadians need this budget like they need a hole in the head.

Here is the amendment that I would make to this budget that would serve to further stimulate the economy, protect the vulnerable and reduce Harper’s reckless deficit by HALF:

(1) Stimulate consumer activity over the next two year period by implementing a phased increase the GST, to 6% effective the start of 2010 and 7% effective the start of 2011. This will reduces Harper’s $85 billion budget deficit by $47 billion (or 44%) to $45 billion. Our children and grandchildren will thank us profusely, as we will be living within our means, in the same manner as we expect of them.

(2) Protect Canadian seniors by eliminating Harper’s income trust tax that has resulted in $108 billion of trust tax related takeover activity over the last two years, resulting in over 2,500 job losses and the loss of $1.2 billion in ANNUAL tax revenue.

This measure would restore $35 billion in lost retirement savings by 2.5 million Canadians (including losses by CPP, Caisse, OMERs, Teachers’ and others), and would serve to protect the remaining tax stream paid to Ottawa of $6 billion a year, that along with jobs is, otherwise, very much at risk. Restoring this income stream to Canadian taxpayers and Canadian seniors would provide an immediate fiscal stimulus to the economy, as these people would resume their former consumption patterns and standard of living. Cat food sales would experience a significant decline, however sales of Canadian made automobiles and Alberta beef would improve by a significantly greater amount. Meanwhile pressures on Canada’s social security system by otherwise impoverished pensioners and seniors would abate.

The only downside to this budget is that it would be free of criticism from anyone across the entire political spectrum, except for those who deny empirical evidence (as it pertains to income trusts or the stimulate effects of consumption taxes) and those who deny that Canadians should ever be asked to live within their means.

Bottom line: This amendment would reduce the budget deficit by half, stimulate the economy, and protect the vulnerable. Meanwhile all the other superficial measures of Harper's hole in the head budget, would remain in place, pending his removal from office.


Leeky Sweek said...

A tax increase never stimulates an economy. It's like a bucket of water on a fire.

Harper should have stuck to a Conservative budget, with tax cuts as an incentive. You need to give those who make wealth in this country the chance to do it, not give it away to an institution (government) that does not itself create wealth.

No can "spend" their way out of financial difficulties, not even governments.

Anonymous said...

I could have paid a lot more in taxes in the last 15 years if there had been a childcare system in place. I had crazy hours, but could make good money, but simply couldn't get reliable, reasonable daycare for those hours, so I had to leave that industry. Now, 15 years later, (I haven't needed daycare for the past 5 years anyway) I've made half of what I could have, paid far fewer taxes and bought a lot fewer goods and services. To say that providing services (spending) would not have increased the $$$ for the rest of Canada by my increased earning capacity is just stupid. Of course you can stimulate the economy for long term sustainable growth with an injection of funds. If you can't see that, your scope is far too narrow.

Big Winnie said...

In time of recession, a tax cut also doesn't stimulate spending.

CAITI said...

Leeky Sweek:

Well I guess that means you don't know what you are talking about or you didn't read the post.

What is being proposed here is a PHASED IN increase in the GST.

You are trying to tell me that wouldn't stimulate the economy and consumer consumption?

If that's your argument then you better tell the Government of England , who are doing that very thing in effect, or Jim Flaherty, whose 15% Home Owner Rebate Thingy is nothing more than that.

Get with the program, if the price of something is on the verge of going up.....then you CONSUME TODAY.....sheesh!

Brent Fullard

Leeky Sweek said...

Jim Flaherty's "thingy" as you call it is a tax credit...the antithesis of a tax increase. And some people, who have money are taking advantage of it. Those who have to be careful due to layoffs, etc. obviously will not partake.

Also, if something is going to go up in the future, you suggest people would buy that today. Might be tough to do in a recession.

Oh yeah...SHEESH!

Larry the Satellite Guy said...

Anonymous 1:37:

So it's government to the rescue? So taxpayers pay for a day care system whether they need it or not under the assumption that you could have made more money. That's fair, make everyone pay so you can work more.

Doesn't sound like you tried very hard to find that daycare provider, even for off-hours.

CAITI said...

Leeky Sweek:

"Also, if something is going to go up in the future, you suggest people would buy that today. Might be tough to do in a recession."

Your second kick at the can makes even leas sense than your first attempt.

"Might be tough to do in a recession".....ahem, that's why they call it "STIMULUS", namely providing financial incentives to do what you might not otherwise be stimulated to do, all other things held equal.

The avoidance by consumers of a disincentive to consumption(i.e. my proposed phased increase in the GST) can be every bit as stimulative as the presence of a carrot (i.e Flaherty's thingy).

For anyone to argue otherwise, defies logiocal rational thinking and would require one to reject the very fundamentals of how eonomies work and how people behave.


Brent Fullard

Leeky Sweek said...

".....ahem, that's why they call it "STIMULUS", namely providing financial incentives to do what you might not otherwise be stimulated to do, all other things held equal."

"Stimulus" or not, financial incentives are absolutely useless if you don't have a job or may be in the unfortunate position of losing it. The government can offer to pay 75% of your bill, but if you don't have the resources to pay the other 25%, the program is moot.

The rest of your point is that a tax increase, phased in or not, will provide an incentive to buy. What happens after the your "grace period" expires and the GST is back at full force of 6%? A consumption tax during hard fiscal times would only serve to penalize retailers and consumers further.

I might suggest that you read my responses more diligently and correlate your thoughts before answering.