Canada - Right Wing Utopia?

[GraphicMatt]

It's not really fair to compare Canada and the US politically right now. While we're both in recession, the U.S. is facing a much more difficult financial situation with banks closing every week and foreclosure rates through the roof. Simply cutting taxes and freezing spending wasn't really an option for Obama coming into this situation.

 

[unimaginative2]

That Cato Institute report looks at some pretty isolated, and favourable, statistics about Canada. What they suggest is more a matter of fiscal responsibility than conservatism. Unlike the United States, we have chosen to spend within our means. Because of that record of responsibility and the priorities we have set, we have been able to provide a more generous social safety net than the United States. A completely unheralded reform of the CPP during the early Chretien/Martin years ensured that the system is permanently stable, compared with the completely unfunded American Social Security system.

Our government also, on the whole, operates quite a bit more efficiently than the American government does. For example, Canadian federal and provincial governments spend less per capita and as a percentage of GDP on health care than American governments, even though they manage to insure 100% of the population compared with about 30% in the United States. A brief look at an American ballot will show that the Canadian government structure is far more streamlined than in the United States, where governance is often quite haphazard. The crisis in California is a perfect example.

 

[Whoaccio]

"Selective Socialism"? That is the dumbest euphemism I have heard since "Socialism with Chinese Characteristics."

That is sort of the interesting part though, I find it interesting that more than a few people here don't like this. If Canada has a decent social security net, well funded to boot, AND roughly lower government spending, isn't this sort of having our cake and eating it too? You would think these would be happy times for the Canadian commentariat, left and right. Instead everyone seems to be a bit upset that the national myth of Canada, that our welfare state is what makes us not American (for better, and worse) isn't entirely accurate.

It has become and identity issue for Maude Barlow types to reflexively identify Canada with public healthcare and the USA with so called "turbo capitalism" while the ideologically degenerate right wing to moan against this apparent reality (see the Harper comment re. Canada being a "Northern European welfare state in the worst sense of the term"). This premise has permeated so many useless identities and dumb debates, its like people are now sad to see it go.

EDIT: As for the report itself, what is "right wing"? I've said it before but that is pretty much just an identity thing. It doesn't mean much, per se. What the report does show is that the size of Canadian goverment (measured mainly as spending as a % of GDP and debt figures) has been consistently dropping since the '90s while the reverse is true in the USA. Now, apparently, we have "less" government, by those metrics at least. I probably shouldn't have included "right wing" in the thread title as that has God&Guns connotations which have nothing to do with the topic.

 

[afransen]

^ That seems a little far-fetched. I don't think the US would realistically ever take military action against Canada. To what end anyway? They absorb 32 million Canadians, radically alter US demographics and get their most leftist electorate in history? They might get our oil but that would be the end of the US as they know it.

As for the Harper-Bush II comparison...that's a little shrill don't you think. When the economy was booming we would have had balanced books with a smaller surplus after the tax cuts. I don't buy that the cuts were unsustainable. The problem, of course, was spending. Our Conservative Prime Minister could not follow through on the Conservative instinct to keep spending in check because he wanted to be everybody's (every province's anyway) friend. With the 10+ billion surpluses of the Liberal era, we could have easily afforded the 2% GST cut back then. That we can't afford them in a downturn is not necessarily an indicator that they are unsustainable in the long term. The Parliamentary Budget Officer and private sector economists have forecasted a return to balanced budgets down the road. I think 2012-2013? In the US, they don't even have that promise. I believe the best Obama can do is get the deficit down to 400+ billion by the end of his first term. After that, the deficit starts to rise again. And that doesn't even account for sub-national government spending. That's a far cry from the situation we face. There is no comparison. Had our government scrapped the GST all in one go, then maybe we would have had a sufficient comparison to make the Bush II moniker accurate.

The PBO, as I recall, stated in October that there is a good chance we are now in a structural deficit. That doesn't mean that we won't return to surplus at some point (when the economy is growing quickly), but it does mean that over the course of the business cycle, deficits will exceed surpluses.

Moreover, we got so very little for that huge deterioration in our fiscal position. Of course Harper isn't as bad as Bush II, but I see similarities: both men implemented changes that caused deterioration in the fiscal position of each country by rapidly increasing spending and cutting taxes. The US could ill afford that recklessness. We can get away with it, but it doesn't excuse bad management in my books.

Certainly I see the need to attract business and keep it--we can't tax businesses out of the picture. But at the same time we can assume the profits from reduced corporate taxes would benefit corporations first and workers second. I'm not for shooting corporate rates through the roof; I'm just wondering if we aren't tilting too far the other way with consistent reductions that aren't always necessary.

From Stephen Gordon's blog:

As you can see, we have pretty high corporate tax rates relative to the developed world. By 2013 or so, between the feds and McGuinty's plans, we'll be down to 25%. That's still a fairly decent level of taxation. If you look at some of those countries on the bottom-right, they are hardly corporatist free-for-all countries.

I guess what I'm trying to say is that you make the mistake that many people on the left make: they think corporations are people that hoard wealth. They aren't. Every dollar a company earns goes to either the owners (and they get the risk-adjusted world rate of return), or the workers (who basically get the rest). You take more money out of the corporations, then the owners continue to get the risk adjusted world rate of return (or they take their money and invest somewhere else), and the workers take the hit.

In the Scandinavian cases, wouldn't the high unionization levels of Scandinavian countries mean more corporate spending through wages and benefit packages? I would think corporations have to throw those numbers into the mix when planning for investment there.

Sure--but that means those people in Scandinavia have jobs with high pay and good benefits. So you're suggesting we have high corporate tax rates and have McJobs instead? This is exactly my point.

 

[jade_lee]

The "selective socialism" was referring to the fact that big banks and big business are subsidized with tax dollars yet we barely look after kids in this country born to the poor. I am definitely addressing the GM deal currently in the planning stage where we pay what GM offered contractually to it's labour force re: pensions. This selective socialism is reflected in what our government is currently doing when they flatly state that only the big guys are getting the bailout where the fallout guys will have to suck it up and future generations will have to pay for it all (as if we didn't know). It cracks me up when Harper says that changing E.I. distribution and amounts would be unthinkable. Just more of a case of the lesser earner having to suck it up.

Canada is about to spend like there is no tomorrow, no deficit is a thing of the past for now. Our commodity currency will go down with the price of oil they say and OPEC is very clear about wanting the barrel to be $55 U.S. Hell I read today that they say they are/or will be producing less oil but in fact they are producing more, greed.

 

[Brian69]

From Stephen Gordon's blog:

As you can see, we have pretty high corporate tax rates relative to the developed world. By 2013 or so, between the feds and McGuinty's plans, we'll be down to 25%. That's still a fairly decent level of taxation. If you look at some of those countries on the bottom-right, they are hardly corporatist free-for-all countries.

I guess what I'm trying to say is that you make the mistake that many people on the left make: they think corporations are people that hoard wealth. They aren't. Every dollar a company earns goes to either the owners (and they get the risk-adjusted world rate of return), or the workers (who basically get the rest). You take more money out of the corporations, then the owners continue to get the risk adjusted world rate of return (or they take their money and invest somewhere else), and the workers take the hit.

While I'm not about to credit corporations for always doing the right thing I will grant the need to stay competitive and pass on some measure of the returns to the workers.

But again, I'm not arguing for increasing the rate and taking money from the owners (and thus from the workers) but slowing the rate of reduction as it means less money in government coffers to implement their own programs.

We've already seen a substantial drop over the past 8 years. Now I hear what you are saying about positioning us better but 25% would be at the top (er, bottom) of the scale and ahead of nations that have social systems that seem to be in better shape than ours. The Scandinavian systems have developed differently from ours and have been fixed for years. The question is, with the reduced taxation levels comes with it less money for the government for social spending. While I'm not always a fan of how our government spends money on social programs I do see the need to keep the coffers up. On the business side it's a no-brainer but on the government side there remains the questions: Can we afford to go that low? Can we really expect to bring in enough new business to counteract such a huge loss in government revenue?

Sure--but that means those people in Scandinavia have jobs with high pay and good benefits. So you're suggesting we have high corporate tax rates and have McJobs instead? This is exactly my point.

It's overstating things to say our corporate taxes have or will create the McJob industry--we're not seeing the disappearance of corporate Canada and have our own niche industries just as the Europeans do. I will agree with the benefits they enjoy but with the higher pay comes high personal taxation levels. I'm also not a big fan of upwards of 70% unionization levels either but that's another issue.

 

[kEiThZ]

Don't the Europeans though make up their revenue shortfall by jacking up personal income tax rates and consumption taxes? Essentially they are trading individual quality of life (or at least reducing consumption) for a better business environment. I wonder if there's some issues of fairness here. Taken to the extreme, one could argue that we shouldn't tax corporations at all and leave the burden of government spending (which in countries such as ours consists largely of social spending) on citizens in a bid to create and preserve employment. It is curious though, that the Europeans have been able to sell this kind of disparity to their populations for so long. Can you imagine any of our political parties here suggesting that all tax cuts go to businesses?

The US is in a particularly curious state on that diagram. High corporate taxes and low social spending. I really wonder how they are going to get out of the pickle they are in. Obama is going to have to raise taxes and he's going to have to do it most likely by the end of his first term. And he might actually have to raise personal taxes while lowering corporate taxes. Definitely not going to be an easy ride. Another issue to watch for is the progressivity of the US tax structure. The Americans have a far more progressive tax code than we do, that's why the Bush tax cuts were an easy sell....there were a lot of voters in the upper end paying a lot of taxes while quite a few people on the bottom paid nothing but were the beneficiaries of the few social programs there are in the US. With Obama revoking the Bush tax cuts, they could be back in a situation a few years from now (post-recession), where the middle class again feels overtaxed, while they still aren't balancing the books.

 

[afransen]

Don't the Europeans though make up their revenue shortfall by jacking up personal income tax rates and consumption taxes?

That's exactly right. Many of these countries have VAT (ie, GST) rates around 25%, and personal income taxes max out at a marginal rate of 60% or so.

Essentially they are trading individual quality of life (or at least reducing consumption) for a better business environment. I wonder if there's some issues of fairness here.

I don't think you can make a very strong argument that this lowers overall standard of living. It does reduce income disparity, though, which ought to be considered a good thing. Income disparity in Canada has been skyrocketing.

Taken to the extreme, one could argue that we shouldn't tax corporations at all and leave the burden of government spending (which in countries such as ours consists largely of social spending) on citizens in a bid to create and preserve employment. It is curious though, that the Europeans have been able to sell this kind of disparity to their populations for so long. Can you imagine any of our political parties here suggesting that all tax cuts go to businesses?

I imagine it persists because it works. Most of the European countries that seem to be constantly floundering in deficit and stangant economic growth are those that try to finance their welfare state through high corporate taxes.

The US is in a particularly curious state on that diagram. High corporate taxes and low social spending. I really wonder how they are going to get out of the pickle they are in.

The trick is that nearly every industry is exempted from paying that stated tax rate. The US tax code is an abomination that would be hard for us to fathom, thanks to Congress and it's members' propensity for being bought by industry lobbies. I'm not sure what actual percentage of corporate profits end up in government coffers, but it bears little relation to the tax rate.

Obama is going to have to raise taxes and he's going to have to do it most likely by the end of his first term. And he might actually have to raise personal taxes while lowering corporate taxes. Definitely not going to be an easy ride. Another issue to watch for is the progressivity of the US tax structure. The Americans have a far more progressive tax code than we do, that's why the Bush tax cuts were an easy sell....there were a lot of voters in the upper end paying a lot of taxes while quite a few people on the bottom paid nothing but were the beneficiaries of the few social programs there are in the US. With Obama revoking the Bush tax cuts, they could be back in a situation a few years from now (post-recession), where the middle class again feels overtaxed, while they still aren't balancing the books.

They really are screwed. I can't really see how they are going to get through this without going through a massive currency devaluation. Obama is talking about raising corporate taxes (and taxing the foreign earnings of US corporations), so things don't look pretty. Canada is well-positioned to pick up some US corporations should they choose to become domiciled elsewhere to avoid US taxation. At the very least, US firms will be at a monumental disadvantage given the tax changes Obama is proposing.

 

[Whoaccio]

Taken to the extreme, one could argue that we shouldn't tax corporations at all and leave the burden of government spending (which in countries such as ours consists largely of social spending) on citizens in a bid to create and preserve employment. It is curious though, that the Europeans have been able to sell this kind of disparity to their populations for so long. Can you imagine any of our political parties here suggesting that all tax cuts go to businesses?

I think it is a bit of a cultural thing. Those Nordic countries have a strong history of collectivism and, for lack of a better word, group action. It can manifest itself in different ways, but the Joe the Plumbers of Sweden and Denmark would probably be more accepting of measures deemed in the interest of the community over their own. Populism doesn't quite exist in the same way it does in N. America.

 

[cacruden]

If you are looking at sources of income to fund government operations, personal income tax and consumption taxes are much more stable than capital gains and business taxes (i.e. profit). I would not be surprised to see most of the deficits that we have now are from a massive loss of those taxes - something that will take years into a recovery to come back (guessing there).

 

[unimaginative2]

If you are looking at sources of income to fund government operations, personal income tax and consumption taxes are much more stable than capital gains and business taxes (i.e. profit). I would not be surprised to see most of the deficits that we have now are from a massive loss of those taxes - something that will take years into a recovery to come back (guessing there).

You're definitely right about PIT, but consumption taxes tend to be quite variable. That's gotten a whole bunch of American states into trouble.