Study
| EST. READ TIME 2 MIN.Tax Payers and Tax Takers
The traditional definition of tax progressivity is being rewritten and this change could have serious ramifications for democratic decision-making. Up to now, tax progressivity has meant that, as an individual or household earned more income, they not only paid more in taxes but also paid a proportionately higher share of their income in taxes. The concept of tax progressivity is being fundamentally altered by government?s expansion of eligibility for tax credits that were initially targeted at low-income earners. The result is that rather than a progressively increasing tax burden, there is a fairly large and growing group of people who do not contribute to taxes in any meaningful way and another group of people, fairly small, that carry the overwhelming burden of taxes.
The new tax progressivity is not yet as pronounced in Canada as it is in the United States, but it has gained an entrance and there is a possibility of its expanding rapidly. If the benefits of tax credits like Canada?s Working Income Tax Benefit (WITB) and the United States? Earned Income Tax Credit (EITC), continue to increase and their application expands to an even wider group of citizens, this program, coupled with others like Canada?s Child Tax Credit (CTC), may very well lead to a tax distribution similar to that observed in the United States today, where a growing number of households pay little or no income taxes.
Such a change in the distribution of taxes, creating a large percentage of earners and tax-filers with no income-tax liability, will then bring consequences similar to those in the United States today where large and persistent deficits are common and decisions on the cost of government are deferred to the future. The only way to encourage Canadians to consider the economic costs and benefits of government programs is to ensure that most Canadians, not just a few, are responsible for paying the price of government.
The key to avoiding such a situation is restraint in applying what should be narrowly targeted tax programs like the WITB so Canada can enjoy the benefits of these programs without incurring the political cost the United States has incurred by aggressively expanding them.
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Niels Veldhuis
President, Fraser Institute -
Jason Clemens
Executive Vice President, Fraser Institute -
Robert P. Murphy
Senior Fellow, Fraser Institute
Robert P. Murphy is a Senior Fellow at the Fraser Institute and Chief Economist at Infineo and author of the widely acclaimed book,Choice: Cooperation, Enterprise, and Human Action. He is also a Senior Fellow with the Mises Institute. He received his Ph.D. in economics from New York University. Previous positions include Research Assistant Professor with the Free Market Institute at Texas Tech University, Visiting Assistant Professor of Economics at Hillsdale College, Senior Economist at the Institute for Energy Research, Visiting Scholar at New York University, Research Analyst at Laffer Associates, and Senior Fellow in Business and Economic Studies at the Pacific Research Institute. Prof. Murphy runs the blog, Free Advice and hosts the podcast, The Bob Murphy Show. He is the author of The Politically Incorrect Guide to Capitalism, The Politically Incorrect Guide to the Great Depression and the New Deal, The Study Guide to Man, Economy, and State with Power and Market, The Human Action Study Guide, The Study Guide to The Theory of Money & Credit by Ludwig von Mises, and Lessons for the Young Economist. He has also written hundreds of economics articles for the layperson, has given numerous radio and television interviews on such outlets as Fox Business and CNBC, and is active on Twitter (@BobMurphyEcon).… Read more