By Goodwin Ginger
So the IMF has scolded Harper for cutting the GST. The IMF has about as much credibility on taxation regimes as GBJr. on the rule of law.
It is simply false to argue that a consumption tax is superior to an income tax. The fact is income taxes that are set up to tax income flows from all factors (Land, Labour and Capital) provide a robust tax base and a more equitable tax regime. By definition those people who are without income pay no taxes under a progressive income taxation regime. This is not the case with a consumption based tax regime. The only thing in favour of a consumption based tax regime is that in a world of tax shelters such as income trusts and tax havens at least those who shelter their income have to pay some tax when they spend.
Under a purely consumption based tax regime a homeless person would effectively pay 15% tax rate in Ontario because he spends 100% of his income. Were taxes to be purely levied under an income tax based regime the homeless man would pay close to an effective tax rate of zero.
Under the current tax regime in Canada wage income and consumption are taxed which effectively means that the tax burden falls on the middle and lower classes. Where are all those productivity gains and savings rates that were supposed to flow from removing taxes on interest and capital gains? Now, I am no Tory but I think Harper is smart enough to know that the case for not taxing Capital is an ideological canard. A useful canard for courting capital, but a canard nonetheless.
The real issue with the Harper tax package is that it has shrunk the tax base and thereby decreased the amount money available for core social programs and infastructure.