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.