Taxpayers will be hooked later for today’s COVID-19 largesse: Don Pittis

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As procrastinators buckle up for June 1 federal tax deadline, it should be remembered that income tax was an innovation in 1917 for a previous budget crisis.

Last week, Canadian Finance Minister Bill Morneau stressed that despite the country’s current financial situation, it is don’t consider raise taxes earlier, even though the Parliamentary Budget Office has suggested that public debt could reach the federal level of $ 1 trillion for the first time this year alone.

While maintaining not the time, at some point, governments around the world will soon have to see how they will pay for all their COVID-19 largesse.

As some economists plan to use artificial intelligence to improve revenue or modern monetary theory to pay the bills, and while others call for a universal basic income, there is no doubt that historically times of crisis have been times of radical financial innovation.

It is well documented that voters love the gifts and new spending of a finance minister but normally hate tax increases or austerity when a finance minister later decides that spending gets out of hand.

But historian Elsbeth Heaman, author of Taxes, order and good government, argues that while people generally do not like the idea of ​​governments taking a larger share of taxes, there are many historical examples where a crisis like the one we are going through can dramatically change opinion .

New attitude towards taxes

“A disaster, a war, a famine, something like that creates a different attitude toward taxation,” said Heaman, a professor at McGill University whose specialties include social, medical and tax history and who edited the Who pays for Canada? volume.

And while in the good times, people tend to accept the type of market forces that offer greater rewards to the wealthy for their efforts in wealth creation, this attitude can change dramatically once a crisis light up the disproportionate suffering of the less fortunate.

(CBC)

The Irish potato famine that left thousands dead in the fever throws from Canada, including Montreal and Toronto, could be an example. The Great Depression of the 1930s was another.

“Whenever you have these major events that have differential consequences for different types of people, where the rich don’t seem to be suffering very much and the poor seem to be suffering very, very intensely, then you tend to have some kind of a reaction brutal against a tax system that seems to mimic the market, “said Heaman.

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She said that the historical evidence is plentiful and that the changes caused have been considerable.

The aftermath of suffering during the depression has permanently reshaped Canada’s tax power structure, said Joe Martin, director of Canadian Business History at the Rotman School of Management at the University of Toronto.

Based on recommendations from the Rowell Commission – Sirois of the Depression era to extend federal taxation for the redistribution of wealthy Ontario and Quebec to the drought-stricken Prairie provinces, the federal government has used the crisis of World War II for expand personal and corporate income tax at the expense of the provinces.

From crisis to innovation

” [There was] strong opposition from Ontario and Quebec, but it passed because of the war conditions, “said Martin. This transformation formed the basis of Canada’s post-war social protection system and became the current system of equalization payments which is still contested today.

Geoffrey Hale, academic from Lethbridge, Alberta, and author of Tax policy in Canada, said that rather than taxing the money the government is currently spending, Morneau prefers to bring the economy to growth so that the debt decreases gradually over a period of years, not in absolute terms but as a percentage of GDP .

That’s why Hale doesn’t see governments raising corporate taxes: for fear of driving out investment. Likewise, he doesn’t think there are many more ways to tax the wealthy who would simply be pushed into tax shelters. Hale suggested that a more politically acceptable source of income would be digital sales abroad, which largely escape Canadian taxation.

But everyone interviewed agreed that if finance ministers decide they need income, there are always places to find it.

Raising consumption taxes or increasing employment insurance premiums are two examples. But more radical innovations could include the wealth tax, an increase in the capital gains tax, death rights, financial transaction taxes (a Tobin tax), a flat tax or a voting tax, perhaps targeting income for a specific need, such as care for the elderly or better health care in general.

Experts said the loans planned so far did not pose a danger to the country and were previously higher in relative terms. Some have said that we may be better placed than the United States at the moment.

“We have the tools”

But, as tax historian Shirley Tillotson of Dalhousie University in Halifax said, evidence from the past shows that government confidence or even arrogance when a financial crisis begins can turn into an alarm if the crisis worsens over a period of several months or years. This is certainly what happened in 1917 and the beginning of the depression.

As she and Morneau said last week – although each with a slightly different meaning – these are just the beginnings.

In the Canadian case, in particular, we have the fiscal capacity, both the ability to borrow and, if necessary, the ability to expand an element of our tax system.– Shirley Tillotson, tax historian at Dalhousie University

Perhaps, as optimists say, the Canadian and global economy will soon rebound. But if things get worse, said Tillotson, Canada is luckier than most.

“We have the tools,” she said. “In the Canadian case, in particular, we have the fiscal capacity, both the ability to borrow and, if necessary, the ability to expand an element of our tax system. “

Recovery could be near. But sooner or later, the time to start exploring alternative tax options is before a financial crisis turns into something worse.


Follow Don on Twitter @don_pittis



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