Crawl Across the Ocean

Monday, July 10, 2006

GST Cut, Another Way of Looking at It

In the comments to my last post, Andrew suggested that the pennies saved on a sandwich didn't really capture the magnitude of a sales tax cut. But if you ask me, the marginal change in the cost of a sandwich really does capture the essence of a sales tax. Sales taxes are like the Wal-Mart of taxes: low margins, but huge profits nonetheless thanks to the sheer volume of transactions.

But if you want another way of looking at the tax cut, consider that the money could have been spent on debt reduction, so it's kind of like the government is lending you money and charging 5% interest. With the benefit being that you can pass off the debt to the next generation if you don't ever repay it in your own lifetime.

5 Comments:

  • I'm sure the Federal government will be absolutely pleased if you decided to voluntarily adhere to an 7% GST and remit 7 pennies back to the CRA after buying your sandwich.

    This is why I generally don't buy the "it's only 7 cents on a $7 purchase" argument - you could then easily justify raising the GST the same amount with the same argument. Let's bring it up to 8%!

    If taxes were legislated to die after they served their purpose (e.g. the "deficit reduction gas tax", "income tax 1917", etc.) then I wouldn't have a problem with the line of reasoning given in your post. But when all of the cash goes into general revenues, that's when you really start having chronic abuse problems since governments will find other ways of spending the cash beyond the reasons for enacting the tax in the first place.

    Just look at how net EI proceeds could come down a couple billion each year, but the government refuses to give anything but token cuts since they're addicted to the cash they spend elsewhere (Liberal or Conservative government, doesn't matter).

    By Blogger Sacha, at 12:19 AM  

  • I'd be happy to refund the government my saved pennies, but only if everyone else agreed to as well. Of course, the only way everyone else will do it is if the government tells them to...

    It's the old collective action problem raising it's head again.

    Aside from that, I hear what you're saying that my post is somewhat naive in thinking that the government would do what I want it to with the extra money.

    The EI situation is particularly annoying but that is probably a topic for a whole post in itself someday.

    By Blogger Declan, at 11:44 AM  

  • "I'd be happy to refund the government my saved pennies, but only if everyone else agreed to as well. Of course, the only way everyone else will do it is if the government tells them to..."

    Typical socialist fare, then, huh? If you're so big on debt reduction and want more done, then start by putting YOUR money where your mouth is. There's an account you can deposit to that goes directly towards servicing the federal debt, so the means are available to you.

    Once you've stepped up to the plate, then you can start flogging your cause on your blog (or another such platform) and encourage others to do the same. Leading by example isn't a dead art in Canada yet, is it?

    "It's the old collective action problem raising it's head again."

    When individuals are unwilling to do their part by themselves but would rather use the coercive power of government to do it for them, I'd say we have larger problems on our hands.

    Look, you know I'm in favour of a bit faster debt repayment - not as aggressive as people like you and Robert McClelland, of course - but still, more is better. However Canadians are taxed pretty heavily, and the GST cut seems like a decent way to at least provide some relief to EVERYONE.... something that other types of tax cuts could never do. I'd rather see money for extra debt repayment come out of programs like the $5b (or whatever) earmarked for child care (as an example) before removing tax cuts.

    By Blogger Andrew, at 11:46 AM  

  • My suggestion is equivalent to saying that all us roommates should make an agreement to do a little extra cleaning in order to tidy up our messy apartment.

    Your response it to say that, if I want the place clean, I should clean it myself, while you sit back and enjoy the benefits of my labours without lifting a finger.

    Or in other words, you resist the socialist approach of using the coercive power of a group agreement to make sure everyone pitches in towards cleaning the apartment, in favour of a laissez-faire plan of either living in a pigsty or relying on the self-secrifice of others for your well-being.

    Within the context of a bunch of roommates living in a house, moral suasion can be enough to ensure that people don't free-ride too much, but in the larger context of society, only government can provide the enforcement that ensures that everyone pull their weight towards the goals we have collectively determined for ourselves - hence the need for government to solve collective action problems.

    In the absence of some enforecment against free-riding, people dealing with a collective action problem get divided into two groups, the selfish and the suckers.

    By Blogger Declan, at 2:07 PM  

  • And to anyone who has read Richard Dawkin's The Selfish Gene (or any other book that deals with elementary game theory), it doesn't often work out so well for the sucker.

    By Anonymous PhilipJ, at 8:36 AM  

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