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Vive New Brunswick

New Brunswick, Canada: By and for New Brunswickers, everyone else take off eh!

Saturday, April 09, 2005

Taxes, taxes, lets talk taxes

The Atlantic Institute for Market Studies came out after the budget and their reply was typical. Not enough tax cuts. For once I agree with them..partly. This is where I part company with most of these 'economic think tanks' which are more 'political think tanks' than economic. Their economic analyses are more along the lines of Lucy's five cent psychiatric fees she charges Charlie Brown from her little stand. The analogy need not stop there, as any Peanuts reader knows that it is Lucy's pulling the football away from Charlie, sending him flying and leading him to distrust everybody, which leads to his seeking psychiatric help in the first place. The AIMS was set up by the same good people who brought you the Fraser Institute and CD Howe (suitable named for that great canadian patriot who removed every facet of industrialization out of the maritimes to Ontario during the second world war), with much of their income arising from american grants and donations. It's highly doubtful such groups are actually looking out for the interests of canadians....

For a good analysis of how AIMS represents 'average canadians' let's look at one of their 'studies'. In one particular study, the economic figures they use don't even come from Statistics Canada, but from the Canadian Taxpayers Federation. This is a group, well, mostly one guy, who make a point of bullying and threatening any group who wants to dare use 'taxpayer' in its name or marketing. You see, the owners have trademark rights on most variations of 'taxpayer' so that nobody else can claim to be representing...well, just about every canadian. This group is also well known to be aggressively pursuing taxpayer's rights, meaning of course, minimizing taxes. Yet not always. For example they are always touting that Canada spends too much on 'social programs', even though we are quite on par with european nations, and even northern states. Yet they want to turn Canada into the southern states, where the gap between richest and poorest is widest, and social spending is almost nil.

What is interesting, however, is that when it comes to other government initiatives, like say, tax increases for a the benefit of the military, then it is a different story. The group was unabashedly pushing for involvement in the US's illegal war in Iraq, even though it would have crippled our meagre military and thereby endangered their lives. The group had no complaints with the latest budget where military spending was boosted considerably-while the number of children living in poverty continues to climb. Clearly, the federation only supports a certain 'type' of canadian taxpayer as they ensure that nobody else supports the rest (at least not with the name).

New Brunswick, like much of the maritimes, is the perfect place for their brand of economic rhetoric. First, the provinces are socially conservative. In my opinion, and it's just my opinion, this is due to several things, the aging of the population, the lack of proactive universities, the larger percentage of rural population. Those can be debated, but I think most will agree that this is generally the case. I'm not even saying that social conservatism is a bad thing, just that it exists.

So the AIMS brand of 'economic conservatism' fits in quite well. Combine that with a general distrust of politics and politicians in general, and you have more support for at least the idea that 'less government is better'.

In a way I kind of agree. I think the government should have less to do with 'income distribution' and more to do with regulating capital. That way, say you have very little money, the government can regulate it so you pass less for necessities, while somebody who has lots of money would pay more. That's, in a sense, how it's supposed to operate now, but AIMS would like to change that.

That's why you hear general things like 'tax cuts'. Of course they are smart enough not to say 'tax cuts for the wealthy' but in effect that's what it is. If you get a tax cut of 5% more off your income of $20,000 that's $1000 more in your pocket. However, let's not forget how economics works. That increase in your pocket is a decrease in your government's pocket, which means less money can be spent on schools, hospitals and grants to municipalities. Which means property taxes go up, and we've seen that happen. Services are also decreased and any student of political economy can tell you that those people in that income bracket are far more reliant on health, education, and municipal spending, than are the upper 10% of wage earners.

So let's look at that upper end. Say you are making $80,000. Of course there aren't nearly as many of those in New Brunswick as elsewhere, but they are increasing as fast as the poor are. With that $80,000 your tax cut is $4000. However, if you actually look at income taxation quite a different set of rules are at play. This is because often with tax cuts there are also cuts in other things that 'help' the wealthy. This is why in the states we have seen that a typically federal tax cut will result in three or four times the percentage of income that a poor earner gains. As a poor person, there are few 'tax reducing opportunities'. If you ever read one of those monster books published in Canada on 'tax reduction tips' they vary along two lines: maximize your RRSP, and start a business. That's it. Whereas for the wealthy there are impacts in all facets of investments, depending on the type. Property tax on land holdings, estate taxes, investment tax, tax havens, capital gains, and the list goes on. So it's been pretty much established that when tax cuts come along, there's one group who always benefits.


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