Michael Bliss joins me in calling Ed Clark's bluff

In today’s Globe, noted historian Michael Bliss his way of calling Ed Clark’s bluff and I have mine.

Mine, as noted yesterday, is to raise more tax revenue by eliminating the absurd practice of taxing executive stock options as capital gains (which they are not, since no capital is at risk) and start taxing them like income from employment (since that’s what they are), and stop having taxpayers subsidize compensation schemes that are at the core of what ails society at large and whose “distorted incentives” were the core cause of the global financial meltdown and the creation of “too big to fail” outcomes...that are bailed out by those very same taxpayers?



Taxing the über-rich would reduce the deficit and social resentment
Michael Bliss
Globe and Mail
Tuesday, Feb. 16, 2010

Why not raise taxes? Instead of belittling TD Bank CEO Ed Clark for suggesting that he and many of his colleagues would be in favour of having their taxes raised, perhaps we should take them seriously. Perhaps even more seriously than they intend.

Our debate about taxation has focused on one form of taxation – sales taxes – and what should be appropriate GST/HST levels. Most of the criticism of the Harper government's tax policy revolves around its having cut the GST to 5 per cent from 7 per cent. It seems to be conventional wisdom among tax experts and taxation enthusiasts that at least a 40-per-cent increase in the GST, back to 7 per cent, would generate the revenue to fight deficits and maintain social spending.

It's seldom mentioned in these circles that the GST, being a consumption tax, is fairly regressive. Despite a few compensatory loopholes, the GST affects most people about equally. The poor pay a much greater portion of their income in sales taxes than the rich. Sales taxes also act as a break on consumption – which is why, in slow economic times, they are often cut to try to stimulate spending. It's almost certain that, if the Harper government had not cut the GST before the current recession, all our experts would have called on it to do so as a stimulus measure.

“ Revenue from income taxes can be increased selectively, without affecting the poor and with minimal impact on economic activity.”

The coming of the GST was welcomed by many tax experts mainly because it replaced an extremely cumbersome manufacturers' sales tax. Today, though, the tax choice is between sales and income taxes. We tax personal incomes at progressive rates, meaning that the wealthier pay much, much more than the poor. Millions of Canadians pay no income tax at all.

Income taxes appear to be much more flexible than sales taxes because of the possible changes in tax brackets and tax rates. Revenue from income taxes can be increased selectively, without affecting the poor and with minimal impact on economic activity.

There is no doubt that spending restraint ought to be the first weapon in deficit fighting. General tax increases should be the last. But perhaps it would be good for both our society and our treasuries if North American governments seriously considered returning to post-Second World War levels of tax on very high incomes.

Inequality of compensation has soared in our time, as the rich have become much richer and much less taxed. Higher taxes on high incomes would begin to narrow the immense chasm that has opened up between the über-rich and the ordinary North American. If properly applied, they could put an end to the frustrating debate about the obscene salaries and bonuses that we pay not only to flailing financiers but to mediocre professional athletes.

From 1945 to the 1960s, the United States and Canada experienced what appears to be a golden age of affluence, growth and, by our standards, increasing social equality. In those years, people with incomes of more than $200,000 paid taxes at marginal rates of 90 per cent in the U.S., and as much as 70 per cent in Canada.

Suppose we adjust for inflation and create new tax brackets in which our marginal rates are substantially more than the current 50 per cent. Why not levy a 60-per-cent tax on income after anyone's first million, and 90 per cent on everything more than $2-million? There would be serious avoidance problems, to be sure, but governments are gradually becoming ruthless at closing loopholes.

In Canada, for example, it might be good tax and social policy simply to abolish entertainment as an allowable business expense. Or we might consider making the income-tax returns of everyone in the highest brackets public documents. While we're at it, we might also revisit the possibility of levying significant death or succession duties to limit the accumulation of unearned fortunes.

Governments everywhere know their people are seething at the unequal effects of the recession and our tax and spending policies. It's too bad that the Harper Conservatives are so opposed to taxation, that they have lost sight of both our taxation history and the possibilities of imaginative fiscal flexibility.

As politics, the idea of raising the GST across the board is suicidal elitism. But taking Ed Clark and his fellow CEOs at their word and taxing away most of the money they don't need and only irregularly earn could help cut our deficit, reduce social resentment and perhaps generate widespread approval as policy grounded in intelligent populism.

Michael Bliss is a historian and professor emeritus at the University of Toronto.