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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


    Long swing in top 1 share
    Long Swing in Top 1% Share greater ability to pay


    Strong real income growth @ very top nil growth for middle class
    Strong Real Income Growth @ Very Top greater ability to payNil growth for middle class


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


    Marc Lee, (2007) greater ability to payEroding 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 ? greater ability to pay

    • 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 greater ability to pay

    • 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 ? greater ability to pay

    • 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: greater ability to payTwo 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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