I’m a bit confused by articles discussing whether high-income tax increases are “fair”, like this one Simon linked to. Many progressives (Elizabeth Warren most notably) argue that it is fair for the government to take some of that wealth because the wealth was earned by consuming social goods. But that’s still accepting the Randian world view that people have an inherent right to be compensated for their ingenuity, not merely their labour.
The Universal Declaration of Human Rights says that people have the right to compensation and property ownership sufficient to ensure their dignity, nothing more. Only the Queen (and the First Nations) has any inherent right to own anything. She allows other people to own things because it is in the best interest of her subjects to do so.
Given that rich people have no inherent right to their wealth, the question should not be how much taxation is fair, the question should be how high can taxes be before it screws up society. There’s a concept in economics called Kaldor-Hicks Efficiency (which is a generalization of Pareto Efficiency): any redistribution of resources is efficient as long as the total amount of resources in the economy does not decline. Taking money from Scrooge and giving it to Cratchit is Kaldor-Hicks efficient as long as Scrooge and Cratchit do not decrease their labour and productivity. (Although note that the Globe & Mail Economy Lab claims that the low capital gains tax is K-H efficient.)
Any Kaldor-Hicks inefficient redistribution will cause a drop in the GDP, which is the current performance measure of choice. But inefficient redistribution could still increase our social welfare function. The left should stop arguing about what exactly the tax rate should be and start arguing about how we measure if a tax system is good.
Dean Murdock is running for reelection as a Saanich Councillor. He has proposed that Saanich require all new developments to sell or rent 10% of their units below the market value. This will have two side-effects:
- More development will happen in other municipalities, which don’t have affordable or sustainable transportation options.
- The price of new units in Saanich will rise.
Some of the rise in prices will come out of developer profits, but some of the increase will also be passed on to purchasers. Since new developments tend to be condos, townhouses and infill housing, they are mostly purchased by members of the middle-middle class. This is taking from the middle to give to the poor while the rich stay rich.
A better solution is to subsidize the creation of affordable housing units in both new and renovated development (like adding a non-market basement suite) using property tax refunds. The City of Victoria has been quite successful using property tax refunds to encourage restoration of heritage buildings.
The refunds should be paid for by raising the property tax rate for the municipality as a whole. Property tax is just about the only major policy level that local governments have, but it’s a good one because it’s progressive: mansions pay more than condos. The current owners’ houses have increased in value because of the scarcity of housing, so it’s time that they pay back the benefits of old policies.
Of course Murdoch can’t propose raising property tax to help the poor, because land owners are the only people who bother to vote in municipal elections. I’m not saying you shouldn’t vote for Murdoch, because this is better than Saanich’s current policy, fuck the poor. But is it not just to ask the middle to suffer for the good of the poor while taking nothing from the rich.
When I write a briefing note, one of the options I always include is #0. The Status Quo. Every other option needs to be weighed against the opportunity cost of staying the course. I don’t see a big difference between PST+GST and HST, so my impulse is not to pay $1.6 billion to switch back. Although I wasn’t convinced enough to write this blog post earlier.
HST taxes a few items higher than PST+GST and doesn’t impose taxes on the supply chain, so it is a higher consumption tax and lower corporate tax. But taxing each step of the supply chain is far more distorting than a corporate income tax and benefits vertically-integrated large businesses over small businesses. Cutting the HST (11% would be enough) and raising corporate taxes undoes this redistribution.
Having a single agency collect HST makes good administrative sense and it does nothing to reduce BC’s sovereignty: the provincial government can decide to apply point-of-sale rebates on whatever they want – they just happen to have chosen gas over bicycles.
A lot of people who are against the HST are not paying attention to the fact that stuff poor people buy (food, children’s clothes, etc.) still has no sales tax. And a lot of the items that people are upset about (restaurant food and theatre tickets are two examples from my social network) are disproportionately bought by rich people: trust me when I say I pay more HST on my French bistro dinners than you do on your McDonalds.
I absolutely agree with the Canadian Centre for Policy Alternatives that BC’s entire tax system needs to be redesigned, but I’m not convinced that voting either way on this referendum will be a step in that direction.
Yesterday was the 90th anniversary of the repeal of prohibition in BC (by referendum). Fans of alcohol in Vancouver celebrated by getting drunk and having a riot. And that, precisely, is why I think prohibition was good policy.
Alcohol is a hell of a drug with a significant cost to society. Heavy alcohol use has a higher direct health cost than most other drugs and alcohol is unique in its ability to cause injuries, particularly motor vehicle accidents. Because of its legal status, alcohol has free reign to cause domestic breakdown and poor job performance.
The problems with prohibition are that:
- it was not implemented consistently: many speakeasies continued to operate and the wealthy could easily access smuggled alcohol
- it was implemented only through regulation: the government did not make an effort to convince people to lower their demand for alcohol both before and after the ban
- no substitutes were available
The last two points get at the crux of the problem: alcohol is both traditional and vital to our culture. Successfully banning alcohol would require widescale cultural change, cultural engineering if you will. Given that many cultures throughout history have practiced intoxication, it seems that humans might have an inherent desire that would be easier to satisfy with a safer alternative drug than suppress completely. David Nutt, the ex British drug czar, is working on an alcohol substitute based on benzodiazepines (eg: Valium).
I believe that reducing alcohol abuse is an important public goal that the government should be willing to use radical means to achieve.
This is based on Jeff’s blog post on corporate tax policy.
Neoclassical microeconomics is all about supply and demand functions (often represented as curves). For a given good or service, the supply and demand functions map between how much quantity and for what money, given all the other things effort and money could be spent on. The sensitivity of supply or demand to price is called “elasticity”.
In a perfect market, the functions for every good and service will balance. If something like a tax or price controls comes along, it will be distributed between producers and consumers based on the elasticity of their functions.
Welfare economists say that the market isn’t perfect so functions generally aren’t balanced. Consumers are sometimes willing to pay more than it costs to produce something, but more producers don’t move into the market because of a market failure (such as a high entry cost). Smart business people are always looking for niches to exploit. Sometimes government intentionally creates market failure to incentivize certain activities, like patents for inventions.
Governments can regulate monopolies to try to prevent cost discrepancies but another option is to tax producers. If the producer is making excess of what they need to continue production, none of that tax should get passed on to consumers.
The debate whether to decrease or increase corporate taxes can be reduced to the question: is there more or less market failure? So much that indiscriminate taxing is preferable to trying to regulate away failure (which is notoriously hard)? Economists can’t agree on how much total market failure there is so this is an appropriate political question. I wonder if sector-specific taxes might work better than an across-the-board corporate tax rate with exemptions?
Some researchers at UBC have brought Canadian media’s attention to the fact that Google search results in the US are rigged. The US National Institute of Health, a government agency, has a deal with Google to place their pages of drug information at the top of searches. Google displays the NIH hit as an “organic” result, below the AdWord results for that search.
This particular issue is unlikely to undermine many users’ confidence in Google’s results. AdWords results are still featured higher, so a side-effect of this policy is a transfer of wealth from pharmaceutical companies to Google. The Institute of Health’s pages are not always up-to-date, because updates to them must be submitted through some bureaucratic maze.
The UBC researchers found that on Google Canada, the top hits for brand names tend to be the websites of US pharmaceutical companies while generic names get Wikipedia. Wikipedia’s information on drugs is often incomplete, although the actual research paper is more optimistic about Wikipedia’s quality improving than the Canadian journalists summarizing it.
My take is that the Institute of Health is messing with the Internet and could be considered to be vaguely censoring*. The correct government policy is to pour resources into improving the Wikipedia articles. Wikipedia is the market leader for providing unbiased information, so using Wikipedia to inform the public is a form of alternate service delivery. The government doesn’t even need a contract because Wikipedia’s already open to government input and can serve as a platform for engagement with other active stakeholders.
How would Wikipedia change if it became important for providing public services? The government could donate to the Wikimedia Foundation to make sure the lights stay on. Government editors could vote for government representatives on the Board of Trustees and start influencing Wikipedia’s editing policies to work in their favour.
* Not that there’s anything wrong with censoring drug companies in the public interest: I want peace, order and good government, not free speech.
You can spend money to make houses more energy-efficient. For example, as Don points out, you’re better off burning natural gas in your own furnace rather than having it burnt at a central powerplant. Other examples are better insulated windows and programmable thermostats.
These investments quickly pay for themselves in lowered energy bills, so homeowners have a strong financial incentive to make the investment. Owners of rental housing have no financial incentive: if your tenant pays the energy bill, who cares how big it is?
This is bad for the environment because simple energy-reduction measures don’t get implemented. It’s bad for society because it makes housing less affordable.
Nudge implies that better reporting might be a solution. When a renter is shopping around for a house now, they often ask “what’s the average utility price?” Unprepared landlords will make something up off the top of their head. This could be fixed in two ways:
The idea is that if tenants had accurate information, the demand for high-energy houses would drop and the rent would follow. However, in a near-zero vacancy situation like Victoria and Vancouver, the market has failed and the price signals are broken.
BC Hydro currently offers modest subsidies for energy refits. They’re obviously not enough: $30 doesn’t cover the cost of 1 programmable thermostat, never mind 5. (If I did, I would install one without asking my landlord.) Although the subsidies benefit homeowners first (so perhaps they should be offset by higher taxes?), increasing them would go toward making housing more affordable.