Making Canada Relevant Again- The Economic Super-Thread

[a_majoor]

Economic growth is not created by spending, but by saving and investment.

Cutting consumption taxes (reducing the GST) had a much more direct effect for poor people, since their tax rates are already low (or even non existent); lowering GST lets them purchase more for their after tax dollars. The effect is much less pronounced the higher up the income bracket you go, people spend proportionally less on consumables as their income rises, so reducing GST helps the poor the most.

The Harper Government's lowering of business taxes and creating savings vehicles like the Tax Free Savings Accounts works the other end of the equation, freeing more monies for savings and investment in the economy, keeping our economy afloat with lower unemployment and faster growth than the United States. 

 

[Redeye]

Economic growth is not created by spending, but by saving and investment.

Not so much. In order to grow an economy you need demand for goods and services. What's preventing any semblance of recovery in the United States is a slump in demand, people aren't buying much because they don't have much disposal income - or they worry about their future income. So they put off non-essential purchases which drags everything down. Savings do fuel capital investment, but right now there's plenty of money held by businesses that they are not investing because they don't see the demand. High savings rates, all else equal, translates generally to slower economic growth. If your statement was true, Japan with its high savings rates would be a fountain of growth. It's not.

Cutting consumption taxes (reducing the GST) had a much more direct effect for poor people, since their tax rates are already low (or even non existent); lowering GST lets them purchase more for their after tax dollars. The effect is much less pronounced the higher up the income bracket you go, people spend proportionally less on consumables as their income rises, so reducing GST helps the poor the most.

Again, no. Consider the average poor/working-class type person. What are their major expenditures? Rent/mortgage, groceries, that sort of thing. None of those are taxed by the GST. We specifically design consumption taxes to reduce the incidence of the tax on those people, by exempting those goods most commonly consumed by them. It might give a small bump to their standard of living. But not a substantial one. It sure does help people buying new cars, new houses over $400,000, and so on, and more heavily consuming goods subject to the tax. That is to say, not the poor. What does actually put more money to spend in those people's pockets is increasing the basic personal exemption or reducing tax rates on lower brackets.

The Harper Government's lowering of business taxes and creating savings vehicles like the Tax Free Savings Accounts works the other end of the equation, freeing more monies for savings and investment in the economy, keeping our economy afloat with lower unemployment and faster growth than the United States.

TFSAs were a good creation, I'm happy that was done. It does primarily benefit higher income Canadians, however, it also provides a better savings mechanism for lower income Canadians potentially than RRSPs. Introduction of the RDSP program, and enhancements to RESPs targeted at lower income families are also excellent policy moves. That said, we go back to the premise that savings do not drive economic growth nearly as significantly as demand - particularly where investment by businesses is as non-existent as it appears to be in the US economy in particular.

 

[PuckChaser]

Again, no. Consider the average poor/working-class type person. What are their major expenditures? Rent/mortgage, groceries, that sort of thing. None of those are taxed by the GST. 

That said, we go back to the premise that savings do not drive economic growth nearly as significantly as demand

What a better way to increase demand then to lower the tax rate on purchasing items? You're contradicting yourself. If savings doesn't grow demand, then targetted tax cuts are the way to help put money into people's pockets who will want to spend it. I don't know if you've bought groceries lately, but I'm spending 25-30 dollars every 2 weeks on HST. Only things like milk/bread/butter (staples) are not taxed. Everything else is hit hard, especially if you have tax-spend Liberals running your province like I have in Ontario, who introduce a HST during an economic crisis, driving down demand even further.

 

[brihard]

TFSAs were a good creation, I'm happy that was done. It does primarily benefit higher income Canadians, however, it also provides a better savings mechanism for lower income Canadians potentially than RRSPs. Introduction of the RDSP program, and enhancements to RESPs targeted at lower income families are also excellent policy moves. That said, we go back to the premise that savings do not drive economic growth nearly as significantly as demand - particularly where investment by businesses is as non-existent as it appears to be in the US economy in particular.

I love the damned thing- my circumstances have been basically ideal for the TFSA. Cl A reservist, working Cl B every summer, full time student. Between my second and third years of school I did a year of Cl C workup training (Sept 07-Sept 08) and a six month deployment (Sept 08 - Mar 09.) Then back to Cl B in the summer adn school during the year full time. Al my income while overseas was tax free, so my actual taxable income was lower. Deductions out the hoop for my education amounts and my rent, my scholarships weren't taxable... So I had the money and then some to contribute to long term savings, but my marginal tax rate was very low due to the chronology of and geography of my income, and my time in school. The tax savings of an RRSP contributions would have only been in the 21-22% range, and sure as hell I'll be in a higher tax bracket than that later down the road. And, looking at things as long term as I am, my TFSA is exclusively loaded with the intent of realizing capital gains (yes, I realize they're only taxed at 50% marginal outside of a registered vehicle).

For someone at my age with the income to contribute and no debt, the TFSA is almost too good to be true- yet it is.

 

[aesop081]

None of those are taxed by the GST.

Groceries are not taxed by the GST ??

I better tell every grocery store around then........

 

[Redeye]

Groceries are not taxed by the GST ??

I better tell every grocery store around then........

No, they're not.

Take a look at a grocery receipt some time. You'll note that with some exceptions (mainly processed foods) which are specifically noted on your receipt, basic foodstuffs are not subject to GST.

The rules aren't exactly clear to the average reader, but they're here: http://www.cra-arc.gc.ca/E/pub/gm/4-3/4-3-e.html#_Toc155586103

Most basic grocery items consumed by an average family would be zero-rated - that is, not taxed.

 

[aesop081]

(mainly processed foods)

Which i suspect is a large part of what the lower-end income bracket buys as it tends to be relatively cheap.

So, yes, the lower-end bracket's groceries are being taxed by the GST/HST and cutting said tax is money in their pockets.


I know what its like to be poor. Do you ?

 

[a_majoor]

So the proposition is that spending drives the economy.

Observations

1. the Democrat Congress boosted spending dramatically starting in 2006, yet this failed to halt or slow the 2008 economic crash

2. An $800 billion stimulus was passed to prevent unemployment from rising to more than 8%. It is currently at @ 11% once various unemployed groups that have been removed from the statistics are added back in.

3. Clinton era welfare reform in the United States has been undone and more money, food stamps and other support flow to the population than at any time in history. Economic activity is still depressed.

4. The US debt rose $4 trillion dollars in the last three years, a spending spree that dwarfs the savings of individuals, business and industry. If spending theory is correct, then the economy should be growing at a rapid rate.

5. The Canadian government has limited the amount of "stimulus" spending and is working to bring its books into balance. The results are in stark contrast to those of the United States (or Europe, for that matter). A comment was made about Japans savings rate, Japan's current account surplus is $194 billion, so I don't think they have a lot to worry about in that regard. Reviewing the economic data seems to show the Lost Decade was just that, once the bad loans and overvalued real estate was worked out of the system things began to work again in the 2000's. A good article in the Atlantic is here

So the proposition has not been demonstrated with over $4 trillion in spending distributed over government, industry and individuals.

 

[Redeye]

What a better way to increase demand then to lower the tax rate on purchasing items? You're contradicting yourself. If savings doesn't grow demand, then targetted tax cuts are the way to help put money into people's pockets who will want to spend it. I don't know if you've bought groceries lately, but I'm spending 25-30 dollars every 2 weeks on HST. Only things like milk/bread/butter (staples) are not taxed. Everything else is hit hard, especially if you have tax-spend Liberals running your province like I have in Ontario, who introduce a HST during an economic crisis, driving down demand even further.

Except that small tax cuts don't really seem to do that - it didn't work when Bush did it, and when the GST was cut twice, there was no appreciable change in spending. That said, the folks at the lower end of the scale, who've really held back on spending might have been spurred to spend a bit by seeing their disposable income increase in the form of an income tax cut. I'd rather see the same amount of tax cuts dispersed in that way because the benefit is the same to all in that manner.

 

[PuckChaser]

So you take that 2% cut off the GST and apply it to the lowest tax bracket. You've given them $900 a year, or $34 bucks a paycheque. What do they do with it? The minute they go and try to buy anything other than the groceries you mentioned above that cash is gone. Canadian household debt-loads are higher than ever before, even with a 2% GST cut. Now add 2% to their mortgages and car payments and tell them its ok, we gave you an extra $34 every 2 weeks.

 

[Redeye]

So you take that 2% cut off the GST and apply it to the lowest tax bracket. You've given them $900 a year, or $34 bucks a paycheque. What do they do with it? The minute they go and try to buy anything other than the groceries you mentioned above that cash is gone.

So you're trying to argue that the tax cut is irrelevant regardless? Well, that's a weird way to look at it. By the way, to have gotten a $900 benefit out of the GST cut, you'd need to spend $45,000 per year on GST taxable goods and services. That's pretty damned difficult to do, even for me, and I'm by no means in the lowest tax bracket.

Canadian household debt-loads are higher than ever before, even with a 2% GST cut. Now add 2% to their mortgages and car payments and tell them its ok, we gave you an extra $34 every 2 weeks.

Mortgages have nothing to do with the GST - unless you've bought a new house worth more the $400,000 - and then there's even rebates. Housing, like basic groceries, is mostly GST exempt. Funny enough, what you've describe sort of sounds like the CPC's explanation of how they handled childcare. "Quit whining, we gave you $100 a month to pay for daycare. (that costs, as I understand it far, far more than that)"

 

[aesop081]

the CPC's explanation of how they handled childcare. "Quit whining, we gave you $100 a month to pay for daycare. (that costs, as I understand it far, far more than that)"

Which is exactly how it should have been handled. The only better way would Have been to say "F**k you pay for your own childcare".

 

[Redeye]

Which is exactly how it should have been handled. The only better way would Have been to say "F**k you pay for your own childcare".

I don't disagree - the proposal for massive national daycare programs would have been chaotic. They did help bump Quebec's birthrate for a while, but only for a while. But the $100 benefit's more of a joke than anything.

 

[Bruce Monkhouse]

I'll take 100 bucks.......

 

[PuckChaser]

Mortgages have nothing to do with the GST - unless you've bought a new house worth more the $400,000 - and then there's even rebates. Housing, like basic groceries, is mostly GST exempt. Funny enough, what you've describe sort of sounds like the CPC's explanation of how they handled childcare. "Quit whining, we gave you $100 a month to pay for daycare. (that costs, as I understand it far, far more than that)"

So we cut personal income taxes from the lowest tax bracket by a small margin and pay for a multi-billion dollar daycare program in a time where every government office is trying to find 10% cuts? Where is your money coming from to fund it?

 

[Redeye]

So the proposition is that spending drives the economy.

CONSUMER spending. Not government spending. However, you need to find ways to spur that spending - meaning, you need to find a way to make consumers feel confident enough to spend, and make sure they have income to spend.

 

[Redeye]

So we cut personal income taxes from the lowest tax bracket by a small margin and pay for a multi-billion dollar daycare program in a time where every government office is trying to find 10% cuts? Where is your money coming from to fund it?

No. We make the cut if we can afford it. And don't try to set up such a program. And don't give people a paltry handout claiming it's a solution to a perceived problem.

 

[SeaKingTacco]

No. We make the cut if we can afford it. And don't try to set up such a program. And don't give people a paltry handout claiming it's a solution to a perceived problem.

Or how about we just accept that it is not the role of Government to solve every (perceived) problem?

 

[Edward Campbell]

Early to bed and early to rise makes a man healthy, wealthy, and wise.
Benjamin Franklin
US author, diplomat, inventor, physicist, politician, & printer (1706 - 1790)
(In "Poor Richard's Almanac")


Making us all "healthy, wealthy and wise" might, if we expand our definitions slightly, be accepted as the productive roles of government.

Healthy includes making us safe and it, therefore, includes the national defence, police and fire services, clean water, sewage and garbage disposal and so on;

Wealthy includes maintaing a strong, stable currency, balanced budgets, and the infrastructure we all use to go about our business roads, seaports, telecomm networks and so on; and

Wise includes education, above all, and R&D.

There are other, less productive, things governments do - not all of which are objectionable; there are counter-productive things that governments do - including some that might save some of the lives of e.g. drug addicts - that are objectionable. Most things that most governments do to, for and about most people are unproductive and, to the extent that they take money away from productive efforts (most of which do not involve governments), are also objectionable.

Governments are not charities. Scrooge was right.*


__________
* 'Are there no prisons?'

‘Plenty of prisons,’ said the gentleman, laying down the  pen again.’And the Union workhouses.’ demanded Scrooge. ‘Are  they still in operation?’

‘Both very busy, sir.’

‘Oh. I was afraid, from what you said at first, that something had occurred to stop them in their useful course,’ said Scrooge. ‘I’m very glad to hear it.’

A Christmas Carol
Charles Dickens

 

[Redeye]

Or how about we just accept that it is not the role of Government to solve every (perceived) problem?

Anyone who would argue that it is in in my opinion is an idiot.