Beware the Tax Cut Trap

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.