Usually the NDP frames their stance against the Harmonized Sales Tax as not being one of anti-tax but one of being anti-regressive taxation. This is a view I am sympathetic to. However, some real-politic concerns have slowly started to change my mind. I say slowly because back in Grad School I was willingly to put up with a never ending series of accusations that I was a petite bourgeois tax renegade by no less than my supervisor and 8 years later I have not been fully convinced. But let me indicate the three most important arguments that have been moving my mind however glacially on the subject.
My graduate supervisor’s point, and one which I was sympathetic to, but just not enough to bring me around on the issue was about the tax base. His argument was that as long as progressive income taxes were in the political firing line progressives would need to fight to keep the tax base and that meant consumption taxes. Indeed Swedish social democrats used largely this strategy to maintain funding for a high quality and efficient social democratic welfare state. Note: Sweden has both higher income taxes and higher consumption taxes than Canada.
The second argument which has started to move me around on this issue is over the question of broader political strategy. Just how will the Carole James NDP in BC, if it were to gain office, manage to raise taxes of any form after having thrown the party’s lot in with what can only be described as Vander Zalm’s petty populist tax revolt? By ranging themselves against consumption taxes does the NDP really think that to the median voter that is a green light to raise their income taxes? So whatever the truth of the NDP’s position against regressive taxation it does not mean they are going to get progressive taxation. I dare Carole James to make increased progressive income taxes the centre piece of the next campaign. Simply put the discursive consequences of being against regressive taxes probably are equivalent to being against taxation in general. In my mind this is the strongest argument against the NDPs war on consumption taxes.
The third argument is the Pigou argument. Simply stated economic activities involving demonstrable negative public externalities ought to be taxed. Tax what you don’t want and redistribute to what you do want. In principle I get the logic here, where it breaks down is getting a political consensus on what we do want and don’t want.
The reality is that there is simply a massive public aversion to higher taxes of any form and there does not seem to be strong consensus on redistribution. So even when we can find an example of where a government has been able to increase regressive taxes there has been only tepid nod to redistribution. Exhibit A would be the last budget in Quebec.
There is a good article, Fueling the Tax Revolt: What’s Wrong with the NDP’s Anti-HST Campaign by Matt Fodor, in The Bullet on all of this including the NDPs various predicaments. I will quote at length the conclusion:
Ironically, the U.S. and Canada in fact have more progressive tax systems than Denmark and Sweden. Taxation rates are higher in the Scandinavian countries at all income levels. Thus the highest earners pay a higher level of income tax, but so does the working class – the ratio between the top bracket and what an average worker pays is smaller in Scandinavia. In 2004, the combined level of personal income taxation and social security contributions for an average production worker was 24.1% in the U.S. and 25.1% in Canada – compared to 33.7% in Sweden. And the average production worker in Denmark (44.1%), along with Germany (44.5%), paid the highest among OECD countries.
All countries use taxes and transfers to counter inequality, but the Nordic social democracies mainly rely on transfers. Transfers as well as taxation, have a role to play in terms of reducing inequality. In a paper for the Ontario Fair Tax Commission – which was established by the Ontario NDP government as a means of exploring tax reform – Lars Osberg stressed that transfers must also be taken into account when one speaks of progressivity:
“In practice, the tax and transfer systems are inevitably closely linked – indeed, it can be argued that transfer payments are ‘negative taxes.’ The net impact of taxes and transfers on individuals is the difference between payments made to and payments received from government. This net impact is relevant for equity purposes. Although some tax choices (such as a value-added tax) may be regressive, taking a higher percentage of the income of the relatively poor, the tax/transfer system as a whole may be progressive, if expenditures benefit primarily the less affluent (as in Sweden).”[11]
It should be stressed that progressive taxation must remain on the agenda for the Left, and that the shift away from progressive taxation (including in Scandinavia) over the past two decades remains a concern. In Canada, the case for far more progressive taxation remains especially compelling. Jackson points out that the income gains of the 1990s went disproportionately to the wealthiest 10 per cent of Canadian families – and these income gains were more pronounced the further up the income ladder. And while the effective income tax rate for most Canadian taxpayers declined only slightly, it declined much more sharply for the very wealthy. The phenomenon of rising incomes at the top, Jackson observes, can only be effectively countered by progressive taxation:
“Canada needs to pay much more attention to income tax progressivity given the steep increase in top incomes, which is now the key driving force of rising income inequality in Canada and other ‘neoliberal’ advanced capitalist countries. Transfers counter inequality by raising the lower end of the income distribution, compared to the middle and the top, while progressive income taxes counter inequality mainly between the top and the middle and the bottom of the distribution. If inequality is now being largely driven by the growth of the income share of the very top, progressive income taxes must play a larger role in our redistributive policy arsenal.”[12]
In spite of the NDP’s denunciation of the ‘regressive’ HST for taxing ‘ordinary Canadians’ rather than corporations and the wealthy, it has failed to put progressive taxation back on the agenda. Besides symbolic gestures opposing the latest round of tax cuts by Liberal and Conservative governments, the NDP has been unwilling to call for increased income taxes for those with the highest incomes. By failing to do so, claims that the party is not “anti-tax” just “anti-regressive tax” ring hollow. The declining progressivity of the Canadian tax system remains a core concern, and an issue that certainly should be taken up by the NDP. However, the key lesson of Nordic social democracy – that a well-financed welfare state necessitates the use of consumption taxes and other so-called “regressive” taxes – remains essential.
There in fact is a compelling case for consumption taxes on socialist and ecological grounds. Social democrats, include those in Scandinavia, have been rightly criticized for pursuing ‘shared austerity’ policies that redistribute income within the working class/middle class while having abandoned policies that target capital. That being said, socialists ought to defend policies that redistribute income from higher-income workers to low-income and unwaged workers on solidaristic grounds. As the Nordic social democracies have shown, this is done through sales and turnover taxes. There is also a ‘public goods’ argument. The taxation of private consumption can fund the provision of public goods (such as parks, public transit, public housing, etc.) that are more ecological than private goods. Furthermore, public goods provision has the effect of decommodification which is as important as progressive taxation in terms of moving toward socialist relations in capitalist societies.
The global economic crisis has resulted in a hard-neoliberal turn toward fiscal austerity and public sector wage restraint and cutbacks. Such an anti-austerity campaign necessitates at the minimum reversal of the Harper government’s cutting of the GST from 7 per cent to 5 per cent, a move that was opposed by the NDP but goes against the spirit of the anti-HST campaign. As Mel Hurtig observes, Canada already ranked number 27 out of 30 OECD countries in terms of taxation of goods and services in 2003. While “someone buying expensive jewellery or new Bentley will save a bundle…a 1 or 2 per cent saving on even inexpensive household items represents only pennies. Yes, pennies to a poor person are important, but 2 per cent of the cost of a million-dollar house could pay for a big pile of groceries for many poor families.”[13]
The GST cut costs the national treasury billions of dollars per year. The restoration of the GST to 7 per cent alone would significantly offset the cuts to the public sector. Further increases to the tax are essential components to the improvement and expansion of public services. Transfers to low-income households could be significantly increased as well.[14]
The building of an anti-austerity campaign that makes the case in support of expanded public services is not likely to come from the NDP leadership, given its opportunistic stoking of anti-tax politics on behalf of so-called “working families,” as well as its muted opposition to current attacks on public sector unions. It is a matter of some urgency to re-imagine what a new anti-neoliberal alliance will look like in Canada. The union movement in Canada is, for the most part, providing almost as little leadership in social struggles. Public sector unions in alliance with users of public services ought to take up the leadership here, but they will only be pushed to do so to the extent a new left begins to emerge inside the wider union movement. But it could be argued that private sector unions and social movements – anti-poverty, feminist, environmental, and other organizations – are in an even worse state of disorganization. This speaks – like the debate over the HST as a whole – to the wider crisis of the left in Canada. An anti-austerity campaign needs to be equal parts a fight against neoliberalism and building a new left. •
Relentlessly Progressive Political Economy 
I’d argue that the third point of Pigovian incentives is exactly where the HST looks most ridiculous in practice. How does it make the least bit of sense that purchasing supplies in order to clean one’s house for the benefit of one’s family is a “demonstrable negative public externality”, while purchasing the same supplies to clean an office for the benefit of clients is of such superior social value that we should avoid classifying it as consumption?
I was trying to indicate that and more with the problem on achieving consensus on goods and bads. The reason the Pigovian position has never really moved me on the matter is that it is usually adhered to by neoclassicals whose list of goods and bads I do not share. In the weaker sense though I do think we can tax the bads and redistribute to the goods. But that is a political problem and hence why I speak of crisis on the left and concluded with Matt’s article.
“The reality is that there is simply a massive public aversion to higher taxes of any form and there does not seem to be strong consensus on redistribution.”
If this is true, we’re in for a re-hash of the Gilded Age (slowed down by central banks, but there you go). On the somewhat brighter side, there was a fair amount of growth in radical orgs then; maybe we’ll get lucky this time.
Don’t forget austerity across the advanced capitalist zone.