Thursday, July 16, 2009

Keep The Taxes Low; Cut Program Expenses To Balance The Books

Terence Corcoran, a Financial Post columnist, weighs in on the Globe and Mail article which calls Stephen Harper's views on taxes "scary".
...In a new book just published by MIT, The Marginal Cost of Public Funds, University of Alberta economist Bev Dahlby -- a world expert in taxation --makes exactly the point Mr. Harper makes about the negative impact of taxes.

Taxes -- all taxes -- destroy economic activity in one way or another. In a market economy, Prof. Dahlby writes, the invisible hand of the market produces an efficient allocation of resources. "Taxes," he says, "will result in a less efficient allocation of resources to the extent that they alter households' and firms' decisions. We can think of this efficiency loss as a decline in the size of the 'economic pie' -- the value of the goods and services produced and consumed in the economy."
But what is really going on here is a mounting Liberal campaign to set the state for tax increases to cover future deficits. Liberals cannot officially plant this idea, and they would much rather have Mr. Harper bear the burden by forcing him to raise taxes. As Rev. Simpson says, donning his economic hat, "economic growth alone will not restore Canada's balanced budget."

If that's true, then the real alternative is is to cut spending. Now that, in Rev. Simpson's Liberal church, is really, really scary, scary.
Program expenses have nearly doubled over the last 10 years - from $118B in 1999/2000 to over $230B for 2009/10. (The amount originally budgeted was $229B but with all the extra stimulus spending, the actual number is expected to be a lot higher than that.) At the same time, Canada's tax burden is 33% of the GDP. That's at least 40% higher than the optimum level (17 to 23% of the GDP). Higher taxes and more program spending will burden the economy, diminishing future growth, if not eliminating it completely. Canada just can't afford that.

No comments: