When progessive taxes aren't

[Anonymous]

http://opinion.financialpost.com/2013/04/24/progressive-taxes-arent/">http://opinion.financialpost.com/2013/0 ... xes-arent/">http://opinion.financialpost.com/2013/04/24/progressive-taxes-arent/

No sales tax for Alberta" (April 24), Professor Rhys Kesselman's argument for a progressive income tax, will certainly please the leaders of the provincial Liberals and NDP. However, in arriving at his conclusion, he made several significant erroneous statements.



First, let's clarify the argument as it affects my approach, with which he disagrees. I advocate a partial shift in the tax mix from personal and corporate income taxes to an Alberta HST, not the elimination of the income tax altogether. It is perilous to rely on only one major tax to fund public services, a point also raised in the 1991 GST debate about the value of catching taxpayers with two fishing nets rather than one. In fact, Alberta already has substantial consumption levies related to private and public goods, just no general sales tax.



An income tax would hit the working population harder

Prof Kesselman questions the economic evidence that economic gains arise from a shift to sales from personal and corporate income taxes. He provides his own unsubstantiated impressions but fails to acknowledge the most important empirical evidence.



Professor Bev Dahlby, an internationally recognized tax economist, has developed detailed analyses of the economic cost of raising funds. In his calculations for Alberta, Prof. Dahlby shows that the existing corporate income imposes the greatest economic cost per dollar of revenue raised, followed by the personal income tax. The least economic cost would be associated with an Alberta sales tax. If Alberta raised some revenue from the HST to replace corporate and personal income taxes, this would boost the economy since a less distortionary tax would replace over-reliance on more economically costly taxes. In other words, this shift would improve Alberta's tax advantage.



These points become clear in understanding what an Alberta HST would do. Part of the HST can be used to reduce the corporate income tax rate, significantly boosting investment. The other part would lower the personal tax, either by reducing the flat rate or increasing exemption levels.



Prof. Kesselman also errs by assuming that only the very rich have savings that are unsheltered from taxation, so that only the very rich would benefit from a switch from income to consumption taxes. As I show in the nearby table, while upper-income households account for a majority of savings, low- and middle-income households also pay taxes on their investment income. Taxable investment income is a significant share of household income at all income levels and therefore not fully sheltered from tax in pension, RRSP, TFSA and other tax-assisted saving accounts. Reducing their personal income taxes would sharply increase the yield on everyone's unsheltered savings.



Prof. Kesselman further argues that consumption taxes and income taxes affect work incentives in a similar way. This may hold for some taxpayers but not for all: Taxpayers of different ages, incomes, and income-tested benefits react to different incentives. An income tax would hit the working population harder than a consumption tax. Even the flat Alberta tax, because it boosts the federal effective tax rates, discourages work among many taxpayers more than would a consumption tax.



Finally, Prof. Kesselman argues that a shift to consumption taxes would shift taxes from the rich to middle-income groups (assuming a low-income tax credit that shelters very low income individuals from the consumption tax). Not necessarily, and not as I suggested at the Alberta Summit. To offset the HST, an increase in the personal exemption would have the highest income groups pay more and those with modest and middle incomes pay less. In fairness, he has not seen these calculations, which will be published in a forthcoming study by Calgary's School of Public Policy. But he should not confuse speculation with analysis.



Prof. Kesselman's preference for a progressive income tax might be acceptable in his province of British Columbia. However, it is far from acceptable in Alberta where the Conservatives and Wild Rose, the two largest parties, express no interest in abandoning the flat tax, which has helped attract skilled workers and investment to Alberta. As both Liberals and NDP in BC push up corporate and personal income tax rates in coming years, Alberta's welcome mat for BC businesses and investors will get well trodden.



When Albertans are asked if they favour a sales tax added to their income tax, only one-quarter do. The public has yet to be polled in its view of a tax mix, involving a sales tax accompanied by lower income taxes.

[Obvious Li]

consumption taxes are the ONLY fair and equitable form of taxation...every other tax is merely a form of income distribution.........which has never worked

[Romero]

Prof. Kesselman's preference for a progressive income tax might be acceptable in his province of British Columbia. However, it is far from acceptable in Alberta where the Conservatives and Wild Rose, the two largest parties, express no interest in abandoning the flat tax, which has helped attract skilled workers and investment to Alberta. As both Liberals and NDP in BC push up corporate and personal income tax rates in coming years, Alberta's welcome mat for BC businesses and investors will get well trodden.

Hmm. Does the author of the article realize that Alberta is $6.3 billion in the hole this year while BC has only a $1 billion deficit?

[Anonymous]

Prof. Kesselman's preference for a progressive income tax might be acceptable in his province of British Columbia. However, it is far from acceptable in Alberta where the Conservatives and Wild Rose, the two largest parties, express no interest in abandoning the flat tax, which has helped attract skilled workers and investment to Alberta. As both Liberals and NDP in BC push up corporate and personal income tax rates in coming years, Alberta's welcome mat for BC businesses and investors will get well trodden.

Hmm. Does the author of the article realize that Alberta is $6.3 billion in the hole this year while BC has only a $1 billion deficit?

True, the current government in Alberta is pretty irresponsible compared to the BC Liberals or Brad Wall in Saskatchewan. That doesn't have anything to do with a flat tax being negative, it simply means they spend too much.



I wouldn't be surprised if the the current Alberta PC's abandoned the flat tax to pay for all their spending promises. It's too bad really that the current Alberta government seems to have pushed out the Ralph Klein wing of the party that was so successful in returning that province's bottom line to the black.

[Anonymous]

consumption taxes are the ONLY fair and equitable form of taxation...every other tax is merely a form of income distribution.........which has never worked

I have read that is the most effective form of taxation. I would be happier with flatter taxes to start with.