Be­ware the Tax Cut Trap

Policy - - In This Issue - Col­umn / Don New­man

It may not seem like it at first, but this col­umn is about tax cuts, spread sheets and health care. Be­cause while each is some­times treated like a stand-alone is­sue, all are, in fact, linked in a pub­lic pol­icy mélange.

Re­mem­ber at the end of last year, the United States Congress passed a tax bill that Pres­i­dent Don­ald Trump signed into law? The Repub­li­can Sen­a­tors, Con­gress­men and pres­i­dent who passed and signed the law have hailed it as a leg­isla­tive mas­ter­piece. That is rather puz­zling, since the tax bill will in­crease the U.S. debt by more than $1.3 tril­lion dol­lars.

While many Repub­li­cans have tried to sell the tax cuts as a ben­e­fit to the mid­dle class, the re­al­ity is that those most favoured by the new plan are high-in­come earn­ers and busi­nesses.

And if any Cana­dian proof of that fact were needed, in this coun­try it is high- in­come earn­ers and busi­nesses that are now call­ing on Cana­dian gov­ern­ments, par­tic­u­larly the fed­eral gov­ern­ment, to fol­low the Amer­i­can lead and en­act the same kind of cuts in this coun­try.

The peo­ple and groups that are urg­ing ac­tion say Cana­dian tax cuts are nec­es­sary for our coun­try to re­main com­pet­i­tive. That, with­out them, new busi­nesses will not want to lo­cate in Canada and ex­ist­ing ones will want to em­i­grate. That peo­ple with high in­comes and high mobility will choose to leave and their tax rev­enues will be lost to Canada when they go.

There are a num­ber of in­ter­est­ing things about these ar­gu­ments. Many of the peo­ple mak­ing them are among the most ac­cu­rate crit­ics of Pres­i­dent Don­ald Trump and his hap­haz­ard, un­fo­cused and of­ten calami­tous ad­min­is­tra­tion.

Here at home, they are the lead­ing crit­ics of the fed­eral Lib­eral gov­ern­ment’s deficit-fi­nanced bud­gets. And now they have a new bête noir, the deathbed con­ver­sion of the On­tario Lib­eral gov­ern­ment back to deficit fi­nanc­ing on the eve of a provin­cial elec­tion they seem des­tined to lose.

It seems a rea­son­able per­son might be pressed to ask why the same peo­ple who are es­pe­cially cog­nizant of all the short­com­ings of the Amer­i­can gov­ern­ment and its cur­rent pres­i­dent, would at the same time be ad­vo­cat­ing for Canada to em­u­late the one sig­na­ture pro­gram it has passed.

This is not the first time Cana­di­ans have heard and thought about this kind of ar­gu­ment. In 1989 and 1990, young Cana­di­ans re­cently grad­u­ated with good univer­sity de­grees were be­ing at­tracted to jobs in the United States. For some, this so­called “brain drain” was wor­ri­some. At the time, the U.S. econ­omy was per­form­ing bet­ter than Canada’s and our dol­lar was low even by today’s stan­dards. The Mul­roney gov­ern­ment of the day was un­der pres­sure to do some­thing. But the prob­lem largely dis­si­pated when the Fi­nance Min­is­ter Michael Wil­son made a speech.

You had to look at Canada and the United States the way you looked at a com­pany spread sheet list­ing as­sets and li­a­bil­i­ties, he said. Cana­di­ans tak­ing their Cana­dian de­grees to the United States were ac­tu­ally gam­ing the sys­tem. They might have some stu­dent debt but not the mas­sive amounts Amer­i­cans do, be­cause in Canada, vir­tu­ally all post-se­condary ed­u­ca­tion is gov­ern­ment sub­si­dized. And when it comes to health care, what­ever it’s frus­tra­tions Canada’s health care sys­tem ben­e­fits all, while the Amer­i­can pri­vate sys­tem ben­e­fits only the for­tu­nate few. Those were only a few of the ar­gu­ments Michael Wil­son used to quiet the crit­ics then. But they are salient today.

Pres­i­dent Trump and the Repub­li­cans in Congress who passed the big tax cuts are also try­ing to save money by agree­ing on a roll­back of the com­pli­cated health in­sur­ance pro­gram en­acted by Pres­i­dent Barack Obama and the Democrats. So far, the ar­gu­ment has been around two dif­fer­ent pro­pos­als. Un­der one, 35 mil­lion peo­ple would lose their in­sur­ance pro­tec­tion. Un­der the other, only 24 mil­lion would be left with­out cov­er­age. Can you imag­ine such a shame­ful ar­gu­ment even be­ing en­ter­tained in Canada? Luck­ily no one can.

But when Cana­di­ans hear ar­gu­ments about fol­low­ing the U.S. on tax cuts they should keep this in mind. Tax cuts mean only one of two things: big­ger deficits grow­ing more debt on which the in­ter­est pay­ments will be­come a ma­jor non-pro­duc­tive gov­ern­ment spend­ing pro­gram; or, re­duced spend­ing pro­grams on health care, ed­u­ca­tion, in­fra­struc­ture and all the other things to build a com­pet­i­tive and rea­son­ably eq­ui­table coun­try.

There is no other al­ter­na­tive. The spread­sheet doesn’t lie.

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