01) THE DEFICIT IS A HOAX - THERE ARE ALTERNATIVES

By Jean Kenyon

     It's budget season, and once again we are told the cupboard is bare. The federal and most provincial governments have been running big deficits ever since the financial crisis of 2008‑09, and therefore don't have enough money for health care, poverty reduction, infrastructure, and other basic needs.

     The deficit has become the latest excuse for skimping on the public services that once made Canada prosperous. But the deficit, truth to tell, is a bit of a hoax, for three big reasons:

1. Personal and corporate tax rates are way out of date.

2. Astounding revenues are lost each year to tax evasion and offshore havens.

3. Governments needlessly do most of their borrowing in the private market.

     If you're over 45, you remember when there used to be 15 tax brackets in Canada. It was a truly graduated system and reasonably fair. But the Mulroney government scrapped it and established only three steep brackets.

     Today we should restore the 15 smaller tax brackets, but scale up the thresholds so that the bottom two brackets are eliminated ‑ freeing the lowest‑income people from taxes ‑ and more brackets are added at the top.

     Today the top income bracket starts at $128,800, above which income is taxed at 29%. Larry Gordon, co‑founder of Canadians for Tax Fairness, writes:

     "According to the Canadian Centre for Policy Alternatives, adding two new tax brackets of 32 per cent on income over $250,000 and 35 per cent on income over $750,000 would generate about $12 billion in new revenue over the next three years. Those modest tax adjustments could fund a new national pharmacare program, or launch a national child‑care program, plus allow university tuition fees to be rolled back to 1991 levels."

     That is, it would generate $4 billion per year of needed revenue, while leaving average households where they are, or even a little better off.

     As for corporate tax rates, Canada's combined federal and provincial rate of 28.8% is the lowest of all the G8 countries.  With the US corporate tax rate at 44.8%, why does ours need to be so low to be "competitive"?

     According to The Star's Les Whittington, Harper's corporate tax cuts have cost Ottawa over $10 billion per year since 2007.  And this money, now left in the hands of business, isn't being plowed back into productive investment but frequently remains "dead money", held in inactive reserves.

     The Canadian Labour Congress calls for corporate tax cuts to be rolled back and restructured as credits, targeted only toward companies that invest in improvements to productivity. The rest should be invested by government in "public infrastructure including transit, literacy, workplace training and child care. These are good ways to prepare for the economy of tomorrow and to stimulate Canada's economic growth and development."

     Harper's cut of 2 percentage points to the GST in 2007‑08 is also costing the public treasury $13 billion per year. By one pen stroke he started his ideologically‑driven push to demolish the surplus he inherited.

     (Ultimately, of course, regressive taxes such as the GST and HST should be phased out as the income tax is reformed to cover the difference. Lowering regressive taxes shouldn't rob the treasury.)

     The introduction in 2009 of Tax‑Free Savings Accounts ‑ which benefit only those with a lot of spare cash ‑ will also cost an additional $3 billion per year as they become fully utilized by well‑to‑do taxpayers. TFSAs have been called an upper‑income tax cut in disguise.

     So far we're up to $30 billion/year in revenues that would be fairly painless to recapture, before we even look at tax havens.

     Canadians for Tax Fairness (CTF) has launched a campaign to urge the Finance Minister to go after money stashed offshore. Under pressure from the OECD, the Commons Finance committee started hearings in February on the problem of tax havens.

     Murray Dobbin, president of CTF states that, "The world's largest corporations and wealthiest individuals use these jurisdictions ‑ there are more than 70 countries offering these services. They park their money where there is minimal regulation, little or no taxation on non‑resident wealth, and guaranteed secrecy which is actually enshrined in the countries' laws. There is no easy way of knowing which corporations have accounts, and no systematic effort to share information with other countries.

Many of the world's largest banks ‑ including most of the big Canadian banks ‑ have divisions whose exclusive function is to facilitate this grand theft."

     Fully one‑tenth of the world's total wealth is sheltered in this way from taxes. The cost to the public sector everywhere is huge, and tragically so for developing countries. It is worth noting that Greece didn't fail because its social programs were too generous, but mainly because tax evasion was rampant.

     Murray Dobbin estimates that Canada is now losing $10 billion a year in revenue from money squirrelled away on sunny islands.  And that's only a small part of the total. Dennis Howlett of CTF, appearing before the Finance committee, estimated total yearly tax evasion in Canada at $80 billion.

     Canadians for Tax Fairness is publishing an eye‑opening new book called The Great Revenue Robbery. It will be launched in April with a Canada‑wide tour.

     It's important to note that most of the tax breaks to the rich, and revenue lost to tax evasion, have to be paid for through government borrowing, i.e. deficit spending.

     Until the mid‑1970s, our borrowing was handled through the Bank of Canada, which was publicly owned and tasked to carry out government policy. Loans were virtually interest‑free and the national debt did not increase. The war effort, housing for veterans, the St. Lawrence Seaway, and the introduction of old age security and medicare, were financed without inflation or significant deficits. Levels of borrowing had to reflect actual productivity, and borrowing in turn was used to enhance productivity. Most bonds did not have to be floated on the international private market as they are today.

     But since that time, the "Bank for International Settlements" ‑ the cabal of the developed world's central banks including the Bank of Canada ‑ has wrested much power away from governments and imposed policies of its own. It has limited the public's ability to borrow from safe sources, putting us at the mercy of private banks, bond traders, currency speculators, and unpredictable interest rates. The result has been out‑of‑control public debt, in Canada and around the world.

     Steps must be taken to reverse this trend, by starting to shift our borrowing back to the Bank of Canada. Beginning to lower the interest obligation on our existing national debt would start to get the austerity monkey off our backs.

     There are solutions, lots of them. I haven't even mentioned here the government policy decisions that squander public money ‑ like military equipment to support missions abroad, and needless jails.

     By updating personal and corporate tax rates, clamping down on tax havens, and shifting our borrowing back to our own central bank, we could eliminate the deficit a few times over.

     But our leaders would have us believe that money is tight and the only "solution" to the deficit is to ream out the public sector, abandon the poor, saddle students with mountainous debt, and privatize health care.

     This is frankly Bullfeathers!

(The above article is from the March 16-31, 2013, issue of People's Voice, Canada's leading communist newspaper. Articles can be reprinted free if the source is credited. Subscription rates in Canada: $30/year, or $15 low income rate; for U.S. readers - $45 US per year; other overseas readers - $45 US or $50 CDN per year. Send to People's Voice, c/o PV Business Manager, 706 Clark Drive, Vancouver, BC, V5L 3J1.)