Monday, December 7, 2009

HST denies the existence of the Laffer Curve




HST is a misnomer, both in name and substance. Better names would have been TOE (Tax ON Everything) or perhaps LOL (Laffer Out Loud), because the HST denies the existence of the Laffer Curve and makes a mockery of it.

The Laffer Curve, as you will recall, is at the very foundation of Reagan/Thatcher economics which is premised on the work of US Economist Arthur Laffer, who argued that depending upon the present level of taxation, lowering tax rates will potentially increase overall tax revenues as a result of its net positive stimulative effect on the economy.

Laffer argues that there is an "optimal" level of taxation, represented by the high point of the Laffer Curve, which defines that rate of taxation that maximizes overall tax collection revenues. In this manner, and depending where you are on the Laffer curve, cutting taxes can potentially increase tax revenues, but that is obviously not the case with the HST, since the corporate tax cuts under HST are being funded with a new dollar for dollar tax burden on consumers and not by any synergistic effect a la the Laffer Curve.

The HST is nothing more than an exercise in shifting the tax burden from corporations to individuals. The HST is being “sold” on the basis of all the wondrous effects that this lowered corporate tax regime will presumably have on growing the economy through increased productivity and increased employment.

If the architects of the HST and its proponents actually believed their own hype about the HST concerning its positive economic impact, then there would be no need to impose a consumption tax on consumers on a dollar for dollar basis to fund this tax break for corporations, would there? Laffler would argue that such a corporate tax break is self funding, whereas the architects of the HST are tacitly (if not explicitly) admitting the HST is NOT self funding, which seriously calls into question both their rehtorical hype about this tax and whether any of the professed benefits are REAL or simply smoke and mirrors.

Therefore, by its very nature the HST is a contradiction in terms. It lacks internal consistency in terms of logic, and is unable to live up to its own claims, from the very outset. Not only does it defy logic, it defies the principles of Laffler and the economic school of thought, known as supply side economics. It is merely a tax break, without synergies, otherwise why would it need to be funded, dollar for dollar, by a corresponding increase in consumption taxes?

Which leads us to another gaping hole in the HST, which is just exactly how is it proposed that the success or failure of the HST will be measured? Or will every good event under the sun from this point forward, now be falsely attributed to the HST? How will we be able to determine whether the HST has accomplished anything, apart from being a massive windfall profit for corporations funded exclusively by a huge new tax burden on individuals? What specifically is being committed to here in terms of the measurable goal of HST? The cost is easily determined, namely a tax on everything, but how will the supposed benefits of HST be measured and what specific measurable benefits are being promised? Or is this just another exercise in trust me? How will the effects of HST be isolated from all the other variables that drive an economy in determining whether anything was accomplished by the HST in a “net” economic sense? Shouldn’t the benchmarks that define “success” be established before-hand, as well as the means by which to measure them?

If the architects of the HST and its proponents have any confidence in the wondrous effects of this tax as they are alleging, then why does this tax cut for corporations have to be funded dollar for dollar via a consumer tax on everything? Therefore, implicit in this tax is the damning admission about its anticipated net economic impact. The only conclusion to reach is that the architects of the HST are telling us that the net economic impact of the HST is ZERO and that any Laffer-type economic synergies are non-existent.

If the architects of the HST had any confidence in the synergistic effects of the HST, they would not require that it be funded by consumers on a dollar for dollar basis, but rather would commit that that the tax be self funding after a period of modest delayed reaction. Rather than taxing individuals to pay for their corporate tax cuts and using $4 billion from the feds to issue “bribe cheques” to placate those most adversely affected by the HST and buy political immunity for Dalton McGuinty and Gordon Campbell, this money could have been used to provide a form of “make up” in the tax revenues in Ontario and BC, during the period of delayed reaction, between when the corporate tax rates took effect and when they became self funding.

Again, the actions of both the federal government and the provinces of BC and Ontario make it abundantly clear that none of them have any belief whatsoever in the alleged benefits of this tax, and have to resort to crude gimmicks like these $1,000 bribery cheques as the means to force bad tax policy down the throats of individuals on behalf of these politicians’ true masters, the corporations.

Unfortunately for the politicians, economic theory lays bare the lies inherent in your empty promises. If your promises had any chance of being true, then this corporate tax break would be self funding rather than funded on the backs of consumers. The fact that this tax break has to be funded in whole by individuals, simply means you are lying to us once again, which probably explains why there are no hard targets that accompany your promises, as you seek to evade accountability at every turn of the screw. LOL.

14 comments:

Dr Mike said...

Here we go again as the gov`ts play us for idiots.

If the corporate tax breaks are so good then there is no need to tax the consumer at all.

Hell , just set a flat tax on corps at 8% & the economy should rock our socks off & they could remove the present 8% provincial sales tax altogether.

Go nuts , flat tax them at 5% & cancel the GST.

If their theory holds then no more sales tax federally or provincially.

Of course , this will not happen.

Still , by their own premise , as the economy ramps-up from the corp tax shift , then there should be a corresponding decrease in this HST in a short time anyway.

I can`t wait.

Life is good.

Dr Mike

Anonymous said...

Good Article!

Canada needs its own Tea Party protests!

What is wrong with the people of Canada? They seem to just accept whatever the elites dictate! They seem to stay "frozen" in their apathy.

It's pathetic quite frankly.

People in the USA are fed up and you will see it in the election results in 2010. The Democrats, who are BY FAR the worst of the two Parties, are in trouble!

Attached is a picture of one of my Tea Party posters.

I'm glad you are keeping this Trust Tax Scam (IncomeTrustGate)alive!

Thanks.

Randy Cox, Ph.D.
Humble, Texas

Dr Mike said...

Way to go Randy---thanks for the support.

Dr Mike

Anonymous said...

I will shell out $2,040 more taxes to pay for our basic necessities
 

 
THE OTTAWA CITIZEN
DECEMBER 5, 2009
 


Using the Citizen's online HST calculator, David Howard figured out that his family would pay an extra $2,316 a year in harmonized sales tax. But with the reduction in personal income tax, he would save $276 a year.


Thank you to the Ottawa Citizen for making available the Ontario HST calculator on its website. You simply place your monthly expenses in those household expenses that will have an effect on the new HST and it will then tell you how much extra you will pay on a monthly basis.

Then I went on the Ontario Liberal website to their online calculator in which you enter your current income and it tells you how much money in taxes you will save on their personal income tax cut.

When I did this exercise my worst fears came to light. I will save about $23 per month on my income tax. However, I will be paying more than $193 a month in extra HST. This means I will be giving Dalton McGuinty and his tax-and-spend Liberal government an additional $2,040 per year in taxes.

Ontarians should really be concerned and start speaking out more as this new HST will adds up to a big bite out of our spending dollars.

On my way to work this week, I filled up my truck with gasoline and bought a coffee. I take small comfort from knowing I won't pay 11 more cents in PST on my morning Tim Hortons coffee, which is exempt, yet my truck took 75 litres of gas and, starting next July, this fillup will cost me $6 more.

I got home that night and opened my hydro bill and based on the new HST, I will soon be paying $38.88 more. After dinner I drove my daughter to her competitive dance lessons and paid one of many bills we receive throughout the year. Even though this one bill was $945, next year it will be $72 more. The list goes on and on.

McGuinty is wrongly stating that income tax cuts and tax credits will more than offset this new HST.

If this is truly the case, then why is McGuinty offering Ontario taxpayers a one-time $1,000 tax rebate? Think about it. The year after we receive this $1,000 bribe, there will be no more tax rebate yet this new HST tax will continue taking money from our pockets, money we could be spending in stores and restaurants actually helping our economy.

It's no wonder the Liberal government does not want to hold any public hearings. This is nothing but another Dalton Mcguinty tax grab that will in turn hurt our economy.

David Howard,

Ottawa

HST Facts said...

Claims that the HST is a tax grab are simply not true. No one believes that Ontario will emerge from this recession the same as it went in. We need to become more competitive.

A report by TD Bank estimates the HST will reduce cost of doing business in Ontario by roughly $5.3 billion and that the majority of these savings will be passed on to customers within the first year. In fact, the majority of items you purchase - 80 percent – will see no tax change at all.

A recent report by economist Jack Mintz confirms that Ontario needs to reform its tax system to create jobs and put Ontario back on its feet. It says, as a result of the HST, within 10 years Ontario would see:
o An estimated 591,000 additional new jobs
o Increased capital investment of $47 billion
o Increased overall annual worker incomes of up to 8.8 per cent, or $29.4billion

We have a choice: we can refuse to fix what’s broken, resign ourselves to the idea that Ontario will be less competitive or we can move forward and get the jobs Ontario needs.

Please visit: http://sites.google.com/site/thetruthaboutthehst/

Dr Mike said...

HST Facts

Citing Jack Mintz as an authority around here is akin to using Pee Wee Herman as an authority on morality.

All that I know is that my hydro , heating fuel , water rate & gasoline will all be heading up 8% & the McGuinty gov`t is giving my family a cool $1000 as a bribe.

Something just does not add up on this one.

Dr Mike

Anonymous said...

What stupid logic. By your funny interpretation of the Laffer curver the high point would even be at 50%. Your logic would make much more sense if you were saying by lowering a 50% sales tax you could increase tax revenues over time. That would make sense - you don't.

Anonymous said...

*wouldn't even by at 50%*

CAITI said...

Anonymous

You make no sense whatsoever. Where on the Laffer Curve does it say anything about 50%?

That is a number of your creation, not mine.

Meanwhile, read my post again, in which I make the important qualifying statement of :

“In this manner, and depending where you are on the Laffer curve, cutting taxes can potentially increase tax revenues”

Operative words “depending where you are on the Laffer Curve”, which is to say I don't make any assumption about where on this curve we are with the corporate tax cuts that are being funded by the HST. We could be on the left hand side of the curve, which would give rise to one interpretation, or we could be on the right side of the curve, which would give rise to a different interpretation.

Unlike you, I don't make assumptions, but clearly the manner in which the HST is being funded, namely through a dollar for dollar tax on consumers means that the existence of the Laffer Curve and the concept behind it are being denied by the McGuinty government, which is to say that we must have cut corporate taxes so much, that there is no meat left on the bone, and no economic synergies to be had, a la the Laffer Curve from this much ballyhooed HST nonsense of a tax.

Brent Fullard

Anonymous said...

You're demonstrating that you do not understand the Laffer curver. The x axis is percentage while the y axis is total revenue. The intersection of the x and y axis is where the tax percentage is 0. The furthest right point of the x axis is 100%. And half way is, get this, FIFTY PERCENT. The point of the curve, you idiot, is that at 0% you will raise zero tax revenues. At 100% you will also raise zero revenues. Somewhere in between you will raise your maximum revenue. In the chart YOU drew it is at 50%. In your logic about the HST its somewhere in the single digit range. Not many people will realize the total lack of understanding you have displayed regarding this curve, including you probably, but you've demonstrated your total ineptitude.

CAITI said...

Anonymous:

You needn’t concern yourself about whether I understand the Laffer Curve.

Meanwhile, you have demonstrated that you don't understand English.

What part of:

"In this manner, and depending where you are on the Laffer curve, cutting taxes can potentially increase tax revenues”

don't you understand?

You are WRONGLY ASSUMING that I am making the point that the corporate tax rates in Ontario for Corporations is at the point where taxes are maximized, namely the vertical line represented by the tax rate indicated at t* which is defined on the graphic as “the tax rate at which maximal revenue is generated”.

I make no such assumptions. However the architects of the HST and its blind supporters (like you?) have. If the corporate tax reductions that are being funded by consumers under the HST were actually as beneficial as McGuinty et al are claiming them to be, then that would suggest that we are moving left along the x axis and closer to the tax rate defined by t*, which would mean that the these corporate tax reductions could be self funding, as the total taxes collected are increased and would not have to be underwritten by consumers.

Since this is clearly not the case, and these corporate tax reductions ate NOT SELF FUNDING, then I can only conclude that the tax rate paid by Ontario corporations is something less that t*, such that McGuinty’s further reducing of taxes is actually lessening the overall tax collection, hence the need to be underwritten by consumers on a dollar for dollar basis.

What part of that don’t you understand, as it is the fundamental essence of what the Laffer Curve teaches us, as put to practice in this situation to reveal the truth and fiction of the HST.

Dr Mike said...

Anonymous

Am I missing something here??

The people in both provinces overwhelmingly do not want this tax yet both the feds & the provies vote for it.

Don`t these guys work for us??

Talk about arrogance---these people have set themselves above our wishes & quite obviously do not care at all about what we think---they are essentially saying you people are stupid & only we know what is best for you.

It`s too bad we don`t have a real recall system so we could show them that we should come first & not big business.

I am sick & tired of this.

Dr Mike

Anonymous said...

Canada is no longer a, democratic, free and honorable country. The voices of the citizens are ignored. The constitution, is, null and void. It would not matter which party was in power, the results would be the same. Big business, never pay their share of taxes. They have the money to back which ever party will favor their tax cuts. The HST, really does wonders for big business. As usual, the tax burden, is shifted to, the backs of, wage earners, low income families and to seniors. The squealing, that would go on if, big business, had to pay their fair share of taxes. Will never happen. This country, is far too corrupt, to be fair.

CAITI said...

Anonymous:

Hear! Hear!

I could not have said it better myself!!!

Ain't it the truth!

Brent Fullard