The Net Effect of
Like many New Brunswickers, I am interested in the tax proposals released by Premier Graham’s government in the Tax Green Paper. I have now submitted my written comments to the government and can only hope that they take the time to consider them along with the many comments received from others. I would like to publicly raise one issue which has only received lip service to date.
A significant portion of the discussion paper outlines the predicted effects of a flat income tax. The authors repeatedly show that everyone who already pays income tax would pay less under either a flat tax or a two-part tax (see Tables 2 , 3, 6, and 7 in the discussion paper). While the discussion paper reads like a marketing pamphlet, making great fanfare of reduced income taxes, it is a very simple mathematical truth that if income is taxed at a lower rate then people pay less income tax.
With little supporting analysis, the discussion paper vaguely estimates that the combined income tax and corporate tax cuts will leave
The discussion paper suggests that the hike in HST is relatively small – “3¢ on a $1.50 coffee” – and implies it would be painless. This, I contend, is a political sleight of hand. It is like a used car salesman dropping the price of a car by $1,000 but then charging you $300 for each tire. The cost of the car increases by $200 overall … unless you can do without tires.
Statistics
Net Tax Payments for a Single Tax Filer
| | Flat Income Tax | Two-Part Income Tax | ||||
| Taxable Income | Income Tax Decrease (Table 2, p.15) | HST Increase | Net Tax Bill | Income Tax Decrease (Table 6, p.19) | HST Increase | Net Tax Bill |
| $15,000 | -$20 | +$210 | +$190 | -$21 | +$210 | +$189 |
| $25,000 | -$359 | +$264 | -$95 | -$326 | +$264 | -$62 |
| $40,000 | -$522 | +$405 | -$117 | -$452 | +$405 | -$47 |
| $60,000 | -$1,018 | +$489 | -$529 | -$1,146 | +$489 | -$657 |
| $100,000 | -$3,160 | +$644 | -$2,516 | -$2,938 | +$644 | -$2,294 |
| $140,000 | -$6,188 | +$1,256 | -$4,932 | -$5,166 | +$1,256 | -$3,910 |
As a result of the HST increase, overall tax “savings” are smaller. Indeed, for single filers with incomes less than $60,000 the tax “savings” are downright modest and for the lowest income earners, the tax bill will likely increase. (For the sake of comparison, 50% of single income earners in
Given travel and energy use has a relatively large fixed component that does not depend upon income the carbon tax proposed in the paper would likely continue to move us in the same direction.
These data raise two important questions. First, why haven’t the various tax proposals been subjected to complete analysis? Second, are the rather modest gains most New Brunswickers are likely to see worth the expenditure cuts that will necessarily follow from a $150 million loss in tax revenues?
At the very least, the government’s tax proposals should undergo complete analysis using state-of-the-art software like SPSD/M. Along with publishing the entire results of this analysis, Premier Graham’s government should also publicly present any proposed expenditure decreases, service delivery shifts (from public to private), and efficiency-enhancing activities that he might make as a consequence of the tax revenue loss.
Only with this information in hand can New Brunswickers make informed choices when considering the bold tax and transfer changes suggested in “A Discussion Paper on New Brunswick’s Tax System.”
Rob Moir is an economist who teaches and conducts research at UNB in
