NDP Leader Carole James should acknowledge the impact of personal tax cuts for the rich

On September 24, NDP Leader Carole James delivered a moderate message at a party fundraiser in downtown Vancouver. She talked about promoting wealth creation, a competitive tax environment, and targeted investments. It’s what we’re used to hearing from the Opposition leader.

James also mentioned that she wants to reduce child poverty and provide more secure housing. But it’s hard to see how this can occur without her promising to reverse some of the B.C. Liberal government’s personal-income-tax cuts.

In November 2009, the B.C. Federation of Labour published a report on the public sector by economist Iglika Ivanova and public-policy researcher Will McMartin. It showed that in the early 1980s, B.C. government expenditures were responsible for approximately 20 percent of B.C.’s gross domestic product.

That has fallen to about 15 percent today in this era of contracting out and privatization. Ivanova and McMartin noted in their report that B.C. Liberal personal-income-tax cuts have reduced provincial revenue by $2 billion per year. Corporate tax cuts have shaved off another $1.5 billion per year in revenue.

“After cutting taxes, the Liberals responded by increasing other taxes (like MSP premiums) and lifting the freeze on post-secondary tuition,” they stated in the executive summary. “But, that was not enough to get the province out of deficit. They also began sweeping cuts in public spending which scaled back or dismantled social programs at an enormous social cost.”

The results of these policies are evident in the rise in the number of homeless people in B.C. during the Campbell era. There’s also a connection between the tax cuts and B.C. leading the country in child poverty rates for seven consecutive years from 2002 to 2008.

As things stand now, the B.C. government generates only 15 percent of its overall revenue from personal income. That’s less than the 17.7 percent of revenue derived from medical-services-plan premiums, motor-vehicle fees (not counting ICBC premiums), tuition, and other fees, including reimbursements for health care provided to external agencies.

In B.C., people are charged a 14.7-percent tax rate on any income over $99,987. Income between $82,342 and $99,987 is assessed at a 12.29-percent tax rate. Those at the opposite end of the scale who earn $35,859 or less pay 5.06 percent in B.C. personal income tax, which is the third-lowest rate in Canada for low-income residents. (The federal government has four personal-income-tax rates. People pay 15 percent on the first $40,970. On the next $40,971, the rate rises to 22 percent. Income between $81,941 and $127,021 is taxed at 26 percent, and the rate rises to 29 percent for anything above $127,021.)

Meanwhile, a new book has challenged the notion that personal-income-tax cuts for the wealthy stimulate economic growth. In The Trouble With Billionaires (Viking Canada, $34), authors Linda McQuaig and Neil Brooks (the latter a professor of tax law at Osgoode Hall Law School in Toronto) write that it is “almost an article of faith among conservative economists and commentators that anything which diminishes the size of the financial rewards for society’s most talented members—such as high taxes—saps them of their motivation to work at full capacity, thereby impeding the overall growth of the economy”.

“This near-certainty is particularly odd since there is almost no evidence to back up such a contention, and much evidence that contradicts it,” they continue.

In their book, McQuaig and Brooks present a compelling case that high marginal tax rates on the wealthy don’t discourage economic growth. And they point out that societies with a more equal distribution of wealth, such as the Sweden, enjoy per-capita incomes above the norm for industrialized countries.

“The truth is, human motivation and behaviour are infinitely more complicated, nuanced, and variable than the straightforward version presented in economic arguments,” they state in their book. They also maintain that the increase in inequality in North America in recent years has “been largely the product of a concerted campaign by a powerful elite determined to enrich itself”.

Not once this year have we heard James acknowledge the downside of Campbell’s huge tax cuts for the wealthy. She probably knows that if she even hints that the rich should pay a greater share, she will get hammered by the Fraser Institute and the editorial boards of the Vancouver Sun, the National Post, and the Globe and Mail.

Until James demands more from those who can afford Bentleys and waterfront mansions, voters should take her claims that she’ll reverse B.C.’s appalling record on child poverty and homelessness with a healthy degree of skepticism.

Follow Charlie Smith on Twitter at twitter.com/csmithstraight.