Cut to the Chase
Tax cuts aren’t the answer — unless we can make sure they go to those who need them
BY Ellen Russell
Illustration by Evan Munday
Feeling tired? Anxious? Depressed? Perhaps you need a tax cut. If you believe the tax-cut lobby, a little extra money in our pockets is supposed to make us all feel better.
But you may have noticed that the $100-billion federal tax cut announced in 2000 wasn’t a cure for what ails you. It gave a disproportionately large windfall to higher-income Canadians, with the top 20 percent of families deriving more than half of the benefit of the total tax cut and the bottom 20 percent left to share just five percent.
With federal budget surpluses projected at about $8 billion each year for the next three fiscal years according to the Canadian Centre for Policy Alternatives, the federal tax-cut lobby is at it again.
But given our previous experience with tax cuts, Canadians are understandably skeptical. A January 2004 EKOS poll found that only 11 percent of respondents believe the feds have actually reduced their taxes over the last couple of years, despite the 2000 tax-cut package. As the tax-cut lobby tries to gain political momentum to dispense forthcoming federal surpluses in the form of tax cuts, it is attempting to overcome this skepticism.
This time around, the lobby wants to persuade us that its proposed tax cuts really will deliver meaningful relief to low income Canadians. For example, you may have heard the lament about the plight of people who pay taxes despite earning very low incomes. The proposed solution? Raise the basic personal exemption—some say to $12,000, others suggest $15,000—so that those whose income falls below that line will pay no income tax.
The problem with this proposal is that it isn’t targeted directly at people with incomes below the suggested amount—all taxpayers would get a break on income below that line. A study published recently by the National Anti-Poverty Organization estimates that, on average, low-income families would receive a little more than $100 per year under this proposal—a mere 3.5 percent of the benefits doled out by this tax break.
And the cost of this tax cut? NAPO estimates almost $9 billion per year—more than enough to exhaust the foreseeable federal budget surpluses.
If the tax-cut lobby really wants to help low-income earners, this is a nutty way to do it. For every dollar of benefit received by genuinely poor families, everyone else would receive $28. It is a fabulously expensive way to offer very paltry help to low-income Canadians.
You might as well load a water cannon with money and spray it over a crowd. Some of it would hit low-income folks, but everyone else would be showered too. Oh, except for one group—if you are too poor to pay income tax this water cannon approach to tax cuts doesn’t sprinkle a drop of money on you.
However, if the intent of the proposal is to give money to everyone but the poor, while professing to help the poor, then this proposal to raise the basic personal exemption is a stroke of public relations genius.
To really help low-income Canadians, tax cuts have to be designed to target the people who need them most. (It’s a basic idea—if you want to hit the bull’s-eye you should aim for it.) For example, the NDP has put forward a proposal that would enable people who earn $15,000 to pay no income tax. According to the plan, people who make between $15,000 and $20,000 would get a portion of their taxes refunded. And because this tax measure doesn’t apply to all taxpayers, it would be relatively inexpensive: The NDP estimates it would cost about $1.25 billion per year.
In fact, there are many ideas out there for tax cuts that really could help people with low and moderate incomes. For example, we could adjust the GST credit to restore its original purchasing power. (This would remedy the decline in the real value of the GST credit that occurred because it was not indexed to keep pace with inflation). Or we could follow the recommendations of Campaign 2000, a group trying to end child poverty, and enhance the Canadian Child Tax Benefit.
The flip side of Ottawa’s surplus is the dilapidation of health care, infrastructure, the environment—you name it. Whatever benefits you got from the last tax cut may well have been absorbed in new user fees for government services and all of those bake sales and walk-a-thons you face to keep your local school in crayons.
If we embrace expensive tax cuts, we lose the opportunity to rebuild the public programs Canadians used to take for granted. Instead, we should look at these federal surpluses as a historic opportunity. Think of what could be accomplished with $8 billion per year! We could have a renaissance of public debate on how to use these funds to do any number of things that might make Canada a more equitable, sustainable, livable country for all Canadians.
