Revised Issues and Concerns Paper on Taxation
Regina, SK, October 30, 2003
There are two reasons for governments to collect taxes:
- Tax revenue makes it possible to provide the services that are needed by everyone from time to time: health care, education, security (courts, police, army), transportation (air, rail, auto, bus), regulators (food, drugs, water, air, waste disposal), social services (child care, care of the handicapped and elderly, care of those who cannot work), pension and unemployment benefits, recreation (parks, libraries, museums, art galleries). Although we don’t all need all of these services all of the time these social supports are sufficiently universal that we recognize that our way of life is more rewarding and productive when we share in their provision.
- Tax revenue makes it possible to redistribute wealth so that everyone has access to the services listed above. This is much more important than most people realize. “Considerable evidence has emerged recently showing how population health is influenced by social/economic relations within a society; the psychosocial impact of these relations; and by experiences during sensitive periods in human development. . . . Analyses of gradient effects show that those countries with relatively equal income distributions are healthier than those with relatively unequal distributions, and that those countries which were able to preserve or increase their level of income equality during the 1970s and 1980s enjoyed greater gains in live expectancy than those countries with increasingly unequal income distributions. These gradient effects were confirmed internationally [as well as] in a study of the fifty states in the USA ; those states with higher levels of income equality had longer life expectancies, independently of their average income.” (Hertzman, Clyde , (1999). Population health and human development. In D. P. Keating & C. Hertzman (Eds.) Developmental health and the wealth of nations: Social, Biological, and Educational Dynamics. New York : Guilford Press.)
There are several forms of taxation and various levels of government tend to have jurisdiction over various forms:
Federal government: income tax, corporate taxes, tariffs and duties, inheritance taxes, sales tax (GST)
Provincial government: income tax, resource royalties, user fees, sales tax (PST)
Municipal government: property tax, local business tax, user fees
The Federal government has the greatest taxing power and their tax policies have the greatest influence on the health of the economy. Income tax is the most “progressive” of all forms of taxation, at least it can be. In the last decade the progressivity of the system has been corrupted as the number of “steps” on the tax form were reduced from 10 to 3. Other corruptions of a progressive system include tax loopholes such as extravagant expense accounts, the dividend tax credit and corporate capital gains.
Another major source of federal tax revenue should be corporate taxes; however, federal policy has changed the distribution of individual vs corporate contributions. In 1950 income taxes from individuals amounted to $3.3 billion and corporate taxes totalled $3.2 billion, an almost equal split. In 1995 taxes collected from individuals amounted to $85 billion and from corporations only $10.9 billion. In other words, the corporate contribution declined from about 50% to about 11%. The shift in burden has fallen mainly on the lower and middle classes.
- The federal government can create a more progressive tax system, i.e., require the wealthy to pay their fair share.
- Eliminate tax loopholes.
- Increase corporate taxes.
- Increase resource royalties
- Re-instate estate taxes
- Eliminate tax conventions with countries that are tax havens
- The federal government has been cutting corporate taxes and downloading the corresponding responsibility for providing services and maintaining infrastructure to municipal governments, both urban and rural. Local governments have no way to make up the loss in revenue; therefore, SSM believes that the federal government should significantly increase transfers to provincial and municipal
- The Boughen Report on Educational Funding (Jan, 2004) recommends that the PST be increased to offset a decrease in property taxes. Property taxes have been seen as discriminatory to land owners in rural areas. The SSM recognizes that both property and sales taxes are regressive forms of taxation in that they place a disproportionate burden on low-income earners in comparison with high income earners; therefore SSM would support an increase in provincial income tax to offset a decrease in property taxes.
Of interest to Seniors:
(a) reduce the effect of Bracket Creep by indexing tax brackets to inflation,
(b) restore the full amount of the tax credits which seniors receive based on age and retirement rather than retaining the current 17% credit limit,
(c) eliminate the clawback on OAS and the GIS,
(d) OAS should be paid to all age-eligible citizens and taxed at the same rate as allother income; tax back, don’t clawback.
(e) fully index OAS and GIS to the actual inflation rate and to the cost of living index,
(f) increase the basic exemption or give a special tax credit for low income earners,
(g) increase tax credits for home care expenses to reflect the true cost of service.
Property tax is regressive in the sense that the value of a capital asset often bears little or no relationship to the income it can generate. In some respects it has a negative impact on a community because a homeowner who improves his property then has a higher assessment which means a larger tax bill.
Municipal governments, both urban and rural, at present are dependent on property taxes to support local infrastructure such as streets, roads, sewer and water, libraries, parks and recreational facilities. However, the biggest draw on property tax, at least in Saskatchewan , is K â€“ 12 education. The contribution of the provincial government varies from about 20% to 40% of the cost depending on the assessment of a school division; the remainder is paid through local property taxes. The Saskatchewan School Trustees Association strongly supports the use of property taxes because it gives local people some control over the quality of education their children receive; however, the SSTA supports a 40-60 split with the provincial government covering 60% of the cost of education. Most provincial governments in Canada now collect property taxes which then go into general revenue. Provinces like Alberta , B.C., and Ontario then give grants to school districts as they choose, but school districts do not have the power to collect taxes to cover costs of their schools when the provincial governments cut the grants. This policy has proved very destructive to public education in those provinces.
Urban and rural school districts need to be treated fairly in terms of assessments and mill rates and the provincial share of funding. This whole area requires public discussion.
Provincial governments rely on royalties on resources such as oil, potash, uranium, pulp and paper, etc. In Saskatchewan these royalties have been cut drastically in the past two decades. This policy has seriously affected provincial revenue. The result is that provincial transfers to municipalities and school districts has suffered. We have the effects in the quality of our roads, water purification, environmental standards, and the cost of education. We recommend that these royalties be increased to 1980s levels.
Sales taxes such as the PST and the GST are important sources of revenue for governments. They are also regressive forms of taxation because the poor have to spend a greater proportion of their income for basic commodities such as food, clothing, transportation, etc., on which they pay taxes. The percentage of a low income paid in sales taxes is thus much higher than the percentage paid out of a large income.
User fees are the most destructive form of taxation as far as the health of a community is concerned. Those who support medicare premiums argue that the sick should pay the costs of their own care; those who need
police, fire, ambulance services should pay for them. The same people argue that university students should pay higher tuition fees because the education benefits the students, forgetting that we all depend on educated people to provide the services we need–legal, information technology, doctors, lawyers, teachers, plumbers and electricians, etc. In fact, our economy depends on educated people.
Parks and recreational facilities promote good health; hence, if people have easy access to these facilities the cost is offset by the saving in health care.
Because the Federal Government has access to the largest and most flexible tax base it is essential that it transfer a much larger share of personal income and corporate taxes to the provinces and the municipalities. Federal tax policy should be progressive and fair. Furthermore, there ought to be a way of holding governments accountable to the public for expenditures. There is a need for public debate on government income and expenditures.
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