Long before Arthur Laffer drew, on a napkin, his infamous curve depicting an inverse correlation between tax rates and revenues, conservatives and progressives were having the same fight about taxes and growth as today: regressive cons insisting that tax cuts pay for themselves, increasing revenue by pumping up economic growth; progressives and virtually all economists (their unprovable opinions notwithstanding) saying they're dead wrong.
The Laffer Curve is an easy to visualize mathematical construct, a downward projecting parabola that sees tax rate on the X axis and revenue on the Y axis; at one end a tax rate of 100 per cent is clearly not good because there's no motivation for earning and thus no tax revenue; likewise a zero per cent tax rate at the other delivers zero revenue. While there are optimal points on this curve, economists generally disagree where they lie, probably because they're likely mobile depending on prevailing realities that are rarely considered. If you listen to self-appointed "fiscal" conservatives, however, there's no such thing as a Laffer Curve, only a "Laugher" line along which cutting taxes always leads to increased revenues. This is, of course, nonsense, but nevertheless reflects how far to the right the debate has shifted. Which brings us to the laughable tax cuts — past and pending — of the Harper government.
Harpercons have made much of a new money-throwing family tax-cut plan that phases out the Canada Child Tax Credit and adds pocket change to the current Universal Child Care Benefit to the tune of some three billion-plus dollars. To add to this genius strategy, wealthy, two-parent families are also eligible to apply to Harper's "family tax cut" income-splitting program, excluding lower-income and single-parent families — or approximately 85 per cent of all Canadians. What superficially reeks of ham-fisted largesse is all part of Harper's "Starving the Beast" agenda, a political strategy first employed by American neo-conservatives. Taxes are cut in order to deprive the government of revenue in a deliberate effort to force it to reduce spending — particularly on that which doesn't fit with its narrow ideology, such as social programs, and climate and environment monitoring (sound familiar?). The short- and medium-term plan in the States was to increase the public debt (this should also sound familiar).
Though clearly partisan as a former finance minister and current Liberal MP, Ralph Goodale sounds cogent when he opines in an Oct. 4, National Post column that Harper has the worst economic growth record of any prime minister since R.B. Bennett: "(His) latest failure, the Small Business Job Credit, is not linked to job creation. It encourages firms to stay small, puts a cap on growth and — for some businesses — could even be an incentive to fire people. It's been panned by experts across Canada... A better way to use the same funds would be to provide an Employment Insurance premium exemption to every business that creates an incremental new job... That would reward every company, regardless of size, that grows its payroll. The Canadian Federation of Independent Business, the Canadian Restaurants Association and the Canadian Manufacturers and Exporters Association all support this approach."
But making sense has never mattered to HarperCons. It's more important to play Chicken-Little games on the electorate with cries of a falling economic sky and endless and annoying parroting of the prescription to stay it from their Ottawa perches: more tax cuts— bwaaak! more tax cuts — bwaaak! Knowing tax cuts lead to more debt, the real question is this: How much do such reckless tax cuts actually cost us?
Lawrence Martin's "The Myth of Tory Economic Performance" in The Globe & Mail sums it nicely: "... we might first address the reddened state of our treasury that's occasioning (budget) cuts... A pertinent question is whether our deficit is the result of natural economic factors or whether it owes itself to vote-getting political expediency. In this context, let's... recall the two-point GST cut that tore a giant hole in the revenue base, accounting for a good deal of the deficit. Let's recall the prerecession spending — having inherited a $13-billion surplus, the Harper/Flaherty team spent so excessively that we were close to a deficit by the time the recession began. Let's recall the slashing of corporate tax rates and the government's easing of mortgage rules and backing of risky loans that further bled the treasury... In the fall of 2008, when the economic crisis hit, was the dynamic Harper/Flaherty duo on top of things? Or were they still saying that the budget would remain in balance and that there was no need for stimulus spending, and bringing in a foolhardy budget update that almost brought their government down? With the opposition parties putting a gun to their head, they introduced a stimulus package that virtually every other country was doing..."
Martin goes on to describe that when he asked someone at the Finance Department what the Tories had done that was so wonderful, the answer was "The PR," concluding that the propaganda behind the great Tory shell game has actually "... masked a middling economic performance."
Quite right. In no case in history have tax cuts ever been proven to accelerate GDP growth; let's hope apostates of this myth pile on before the next election.