More Taxes Won’t Fix Our Fiscal Mess
Not a day goes by without someone, somewhere, asking for politicians to levy another tax on a particular group — ''the rich,'' drivers, smokers, or taxpayers in general.
And with fiscal deficits crippling many provinces — especially Ontario and Quebec — brace yourself. You can count on lobbies of all sorts and politicians to come up with ''innovative'' ideas on how to dig deeper into your pockets to pay for their pet projects. As a matter of fact, several provincial politicians are currently presenting higher taxes as a way out of our fiscal mess.
Take Ontario. The recent budget will increase taxes on high income earners, tobacco and aviation fuel, to raise $29 billion over 10 years for public transit and infrastructure projects. Overall, the Liberal budget lays out $900 million in new taxes.
Same in Quebec. Quebecers have gone through a rainstorm of taxes in recent years. These include: two percentage points of QST increase, taxes on gasoline (4 cents in four years), rising cost of registration plates, rising price of driving licenses, introduction of a "health tax," income tax hike for "the rich," higher taxes on alcohol and tobacco, higher mandatory contributions to the public pension plan, to the Parental Insurance Plan, higher school taxes, higher municipal taxes…
And despite all this, the governments of Quebec and Ontario are more broke than ever. Seems like revenues are never high enough.
Guess what? It is never enough. Governments, by their very nature, will always ask for more.
As economists Stephen Moore et Richard Vedder have shown in a study whose results were published in the Wall Street Journal some time ago, every new dollar of new taxes leads to more than one dollar of new spending by government. ''We found that over the entire post World War II era through 2009 each dollar of new tax revenue was associated with $1.17 of new spending. Politicians spend the money as fast as it comes in–and a little bit more.''
Granted, these American economists studied the US Congress. But politicians are politicians, whether they're Americans, Canadians or ruling in any other country.
In their study, Moore and Vedder looked at different periods, different data and different variables. But no matter how they configured the data, higher tax collections never resulted in less spending.
This might explain why Canada's Income Tax Act now is now 3,206 pages long, as pointed out recently by the Canadian Taxpayers Federation. That's over a million words! Every time we get hit by another tax, keep in mind that some industry lobby group convinces a politician to give him a new tax credit of some sort. Repeat the process over and over, and you end up with a document so big no one has any idea what's really in it, or how the tax system really works.
This shouldn't come as a surprise. Politicians will always find a way to spend new money. Even if governments were to collect revenues from tax havens, for example, they would find a way to spend these revenues and even a little more. And let's not forget that such expenditures must eventually be repaid by taxpayers.
So keep this in mind the next time someone proposes a new tax, or says higher taxes will fix our problems and improve our fiscal situation of chronic deficits. It would be naïve, to put it mildly. In fact, they have it backwards: Our fiscal cure clearly lies in cutting spending, not raising more taxes.
Michel Kelly-Gagnon est président et directeur général de l'Institut économique de Montréal. Il signe ce texte à titre personnel.