Tax cuts for who?

So finally the promised and much vaunted 1% cut in GST has finally arrived and everyone is suddenly fantastically richer than they were this time last week.

Or not.

Conservatives ALWAYS pledge to cut taxes. It’s their number one sales pitch to the poor, overtaxed downtrodden. In fact often it’s the only card they seem to play. I saw this repeatedly in England and Canada’s Conservatives are grinding out the same stuck record. Elect us and we’ll cut taxes.

To be fair, they often do. The Conservative governments of England under first Thatcher, then Major, cut lots of taxes. They also then increased lots of other taxes too. Many of these were not ‘direct’ taxes such as income taxes, but rather indirect taxation such as reducing entitlement to benefits, cutting provision in schools and grants etc. The net result however was an overall increase in the overall tax burden for the majority of people.

One group of people who did seem to benefit from the changes however were people who were already rather well off. Strangely, these people enjoyed quite a bit of direct benefit from the changes in the form of saving them thousands on fancy houses and cars etc.

When Labour came to power in England it was under the banner of ‘no tax rises’. Since then, again there have been tax rises and it’s fair to say that the overall tax burden probably hasn’t changed a great deal; in fact it might even have risen again. With Labour though, the benefits do at least to occasionally benefit the poor instead of the rich (admittedly, probably only by accident).

The new GST cut is showing exactly the same trend. A lady buying a 700 thousand dollar house is happy to see an extra 7 thousand dollars in her pocket. While the rest of us see little change or even an increase in the overall taxes we pay because of the increases in income tax and higher duty on alcohol.

It would be easy to draw the conclusion from this that Conservatives always tax to benefit their rich friends to the detriment of the poor and that Labour/Liberal parties tax to take a little more from the rich to help the poor. In fact this position is often stated and repudiated by one branch of government or another (or indeed by the various media channels supporting the different factions).

The truth is somewhat stranger than the politically driven, newsworthy fictions though.

In order for a government to operate it needs to draw in a certain amount of money to fund its operations. All of the government programs, economic incentives, grants, Stephen Harper’s child support pay outs and all the (rather flagrant) expense account claims, need to be paid for.

Governments as a whole do not make money (except for where individuals abuse their position to channel business and contracts to Saudi Arabia 🙂 ). Rather governments SPEND money and the bigger, more involved they are in every day affairs, the more bureaucracy grows – the bigger the costs of said government.

Having no other sources of income, the governments do what they do best. They take it from the people.

Imagine that our government was a model of efficiency and only needed one dusty old clerk to perform all its functions. It would need enough funds to pay her wages, so probably around $40 thousand a year. This gets split between each of us and we all have to pay a few pennies in tax per year to keep the old dear going.

Some of that may be taken through ‘direct’ taxation such as income tax, some may come in the form of taxes on ‘luxuries’ (such as food and heating) and some will come from ‘taxes’ on liquor and gas to try and persuade us to be socially responsible.

So now let’s cut the tax on luxuries. Suddenly we haven’t got enough to pay the old lady her salary and if we don’t then government won’t function and chaos will ensue (possibly not actually, but play along with me…). So in order to continue paying for her Number 3 knitting needles we have to get the money elsewhere, so we’re going to have to raise income tax or have a tax on how many times you go to the bathroom or something because otherwise Granny Government is going to stop knitting!

Multiply this up in to real figures and the principle is still the same. The government needs X amount of funds to operate and no matter how you slice that up it still adds up to the same amount. This is why the overall burden never really changes much and why it always tends to increase over time regardless of who is in office. Our taxes are higher because government is bigger and more intrusive.

The only way to affect this is to limit the size of government and so far we don’t seem to have found any very good ways of doing that. One way, suggested by Robert Heinlein, was to make the members of the government pay their own way – no salaries, pensions or stipends. Make them pay for their own antisocial behaviour.

It still sounds good to me.

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