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Fair Taxes for Nova Scotians - What Would That Mean ?. Lars Osberg Economics Department, Dalhousie University. What do Taxes Do?. Taxes Raise Revenues – pay for services & transfers Public Services influence Level of Output E.g. roads, schools, police, health care

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fair taxes for nova scotians what would that mean

Fair Taxes for Nova Scotians - What Would That Mean?

Lars Osberg Economics Department, Dalhousie University

what do taxes do
What do Taxes Do?
  • Taxes Raise Revenues – pay for services & transfers
    • Public Services influence Level of Output
        • E.g. roads, schools, police, health care
    • Public Services + Taxes & Transfers influence Distribution of Output
      • Fair Taxes to enable Fair Outcomes

– Fair Level to imply sufficient revenue + Fair Structure to share burdens fairly

  • Taxes Change Private Incentives and influence behaviour

Disincentives? – Do taxes reduce incentives for desirable behaviors?

Correct Incentives? - Can taxes help Private Incentives align to Public Good?

Some privately desirable behaviours cause harm to others

- Taxes as compensation for harm & added incentive to avoid

Fair Taxes – both process and outcome equity matter

Fairness is a multi-dimensional idea

fairness horizontal equity equal taxes for those with equal ability to pay
Fairness: Horizontal Equity – equal taxes for those with equal ability to pay
  • Horizontal Equity - “A Buck is a Buck”
    • Total Income taxed at same rate whether income comes from Wages or Salaries or Capital Gains or Dividends?
    • Consumption taxed at same rate regardless* of type of commodity?
          • * Note: if no harm caused to others by consumption
  • Horizontal Inequity
    • Income example: special tax treatment for capital gains?
    • Consumption example: How to keep warm in winter?
      • Insulate Home – Pay HST
      • Buy sweaters – Pay HST
      • Burn home heating oil – No HST
fairness vertical equity greater taxes for those with greater ability to pay
Fairness: Vertical Equity – greater taxes for those with greater ability to pay
  • Historical Context:
    • Top 1% has BIG increase in income share in Canada 1986-2011
    • Tax rates at top have fallen in Canada
      • Nova Scotia – raised top bracket in 2009; now 2nd to Quebec (how long?)
  • Vertical Equity
    • Progressivity in Total Tax Burden – sum of all taxes
  • Vertical Inequity
    • Income Taxes: Income splitting gives most $ to top income
    • Consumption Taxes:
      • Bigger Income => Bigger House =>Bigger Fuel Bill => Bigger HST save
slide7

Total tax incidence proportional over most of range – progressivity erodes since 2000Marc Lee, (2007) Eroding Tax Fairness: Tax Incidence in Canada, 1990 to 2005 Canadian Centre for Policy Alternatives, Toronto November 2007

slide8

Marc Lee, (2007) Eroding Tax Fairness: Tax Incidence in Canada, 1990 to 2005 Canadian Centre for Policy Alternatives, Toronto November 2007

taxes as fair price for services used
Taxes as fair price for services used ?
  • Money paid to government has many names
    • Fees, Duties, Royalties, Taxes, Fines, Fares: all = $$$$
  • Fair “Price” for government services – only if discretionary
    • Example: Parking Meters & Tickets; price for use of public streets
      • “Taxes”: Increase Incentive to use scarce public resources sensibly
  • BUT can conflict with Vertical Equity Principle
    • Example: HRM proposals for ‘reform’ of property tax system
      • Most $$ benefits to South End in short run
      • BUT in long run, transfer of municipal tax burden to poorer areas implies continual pressure for ever lower municipal service levels
        • Both rich and poor end up worse off !!!
taxes intergenerational fairness
Taxes & Intergenerational Fairness
  • Fairness and Equality of Opportunity
    • Canada & Nova Scotia – no Inheritance Tax + increased private tuition funding for post-secondary education
      • Children of the affluent inherit education + financial wealth
      • Children of poor get choice: student loan debt or less education
  • Fairness and the Intergenerational Bequest
    • Environmental Bequest: Global Warming
      • Burn Fossil Fuel? Carbon Tax discourages; HST exempt encourages
    • Capital Stock
      • Infrastructure Investment & Repair depends on level of tax revenue
    • Public Debt
      • Declining Debt/GDP ratio implies sustainable for future generations
tax incentives disincentives
Tax Incentives & Disincentives ?
  • Disincentive to Desirable Behaviours?
    • Labour Supply: “Optimal” Top Rate ~ 70% (well above current rate)
  • Fair Taxes to offset harms caused to others
    • Undeveloped vacant lots which cause downtown blight
      • Halifax: Developers do not now pay for harm caused to neighbours
        • Escalating tax on vacant properties & land could increases incentives to develop
    • Burning fossil fuels adds CO2, increases global warming

The “Double Dividend” of Carbon taxes (everywhere)

- increased incentives to reduce fossil fuel usage

- produces revenue which enables other taxes to be cut

Nova Scotia: The “Double Deficit” of Fuel Oil Tax Exemption

- less incentive to reduce CO2 emissions

- $88 Million less revenue for services &/or lower taxes

taxes public services two sides of one coin
Taxes & Public Services: Two sides of one coin
  • “Tooth Fairy Economics”
    • Cuts in taxation are free – no cost to level of Public Services
  • Real World Economics
    • Efficiency: Jurisdictions differ in level of taxes/public service
      • Davos “Competitiveness Index” – Top countries are NOT low tax
    • Equity: “Social Wage” of public services
      • Large & most important for the less affluent
    • Well-Being: Public Goods are also valued by the Affluent
      • Parks, Safe Streets, Public Amenities have positive Income elasticity
        • Progressive taxes can make both rich & poor better off !!
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