Saturday, July 27, 2013

The Wisdom Of Direct Investment

One of  the Right's favourite shibboleths is that, when government invests directly in people, it encourages sloth. Far better to offer citizens tax credits. Government shouldn't invest, they say. It should cut taxes. But Carol Goar writes in The Toronto Star:

The C.D. Howe Institute, financed primarily by business, has concluded after a thorough analysis of the tax system that Ottawa should switch back to investing in social programs.

Economists Alexandre Laurin and Finn Poschmann found that the more a working family earned, the more it lost in clawed back benefits and higher taxes. Low-income families were the hardest hit. Their marginal effective tax rate — the amount they owed on each additional dollar — could be as high as up to 60 per cent (80 per cent in Quebec.)
 “There are better alternatives aimed at supporting low-income families through universal in-kind programs such as neighbourhood facilities and services aimed at target communities,” they said.

The Harper government considers that conclusion pure heresy. However, Laurin and Poshmann document how the present tax system encourages sloth:

Last week’s report, Treading Water: The Impact of High Marginal Effective Tax Rates on Working Families in Canada, went a step further. It followed the poor into the labour market and found they were penalized for extra effort. The more they earned, the more benefits they lost. The three big ones were the Canada Child Tax Benefit, which is phased out as a family’s income rises; the GST/HST Credit, which likewise diminishes as income rises; and the Working Income Tax Benefit, which starts to decrease at a family income of $15,509 and falls to zero at $27,489.

 To make their numbers relevant to laymen, Laurin and Poschmann created a hypothetical couple, Peter and Marie Thompson, with two children living in a rented apartment. He worked full-time and she worked part-time. Together they brought in $40,000 — just enough to make ends meet. Marie was considering a switch to full-time work to earn extra money. But once the couple weighed the costs and benefits, they realize she’d lose almost much in benefits as she’d make in income. (Her marginal effective tax rate was 68 per cent).
Well-off couples are spared this double whammy. If one of the parents worked longer hours, it might push the family into a higher tax bracket, but it wouldn’t result in lost cash benefits because most are targeted at low-income earners.

The Harper government has declared war on the poor. It has reduced Employment Insurance benefits. It has accused recipients of fraud. It has cut health care spending. It has trashed the Kelowna Accord. And it has helped the rich get richer -- claiming that helping the rich get richer will create jobs for the poor.

The evidence is incontrovertible. Their "program" is pure hogwash. If they really wanted to improve the lot of those who are just getting by, they would invest in affordable child care and public transportation. Instead, they offer sermons about laziness and their own righteousness.


bcwaterboy said...

A demographic often falling by the wayside are seniors living in poverty, the very voting base the harper government relies on while progressives stay home on election night. I often witness Kelowna MP Ron Cannon "chatting about issues that matter to his constituents" with these poor seniors who fail to realize that his government is setting up another generation of poor seniors. Those folks without a doubt will be even worse off, they just don't know that they're being robbed ever so slowly of a comfortable retirement.

Owen Gray said...

The Harperites are working against the self interest of their core constituency, waterboy.

But they do it incrementally, so -- like frogs in a pot -- those voters won't know what's been done to them until it's too late.

Anonymous said...

Owen, thank you for this post. I have seen and lived the wrath of this war on the poor, since the Harris, Clement, Baird days, in Ontario. As for the CONS garnering the (poor) senior's vote, the same phenomenon happens in the US with the Republican (poor) voters.

Owen Gray said...

We lived through the Harris years, too, Linda. And, given the composition of Harper's front bench, what we have in Ottawa is Harris 2.0.

Ontarians should have learned from experience what that means.

Anonymous said...

And, Owen, I forgot to mention the most important point--that Jim Flaherty, finance minister extraordinaire, wanted to make it policy to LOCK US UP!! Notwithstanding the fact that it would be much cheaper and far more humane to house and feed us--it was the humanity the CONS couldn't conceive of. No wonder his office was trashed and I can't wait for the day the whole damn lot of them to feel the wrath of US.

Owen Gray said...

Like you. Linda, I recall that Flaherty's solution to homelessness was to sweep people off the streets and house them in jails.

Before recommending a solution, Mr. Flaherty should experience it himself. I doubt he could survive in jail.

The Mound of Sound said...

Well this should send the Fraser Institute boys into a frenzy of soiled Depends.

We rarely, if ever, consider the hidden cost of poverty in eroding our societal cohesiveness. That is one of the most undervalued assets we can have especially in an era with so many demographic, democratic, economic and environmental challenges.

Owen Gray said...

The boys at the Fraser Institute can't abide the possibility of social cohesion, Mound. Like Maggie Thatcher, they believe there is no such thing as society.

Lorne said...

No matter how much evidence may be adduced to show the folly of their policies, the Harper Conservatives are not known to let facts get in the way of thei ideology, Owen. Their twisted worldview that everyone is out to beat the system and get as much for themselves may be true when looking at the goldbrickers they appointed to the Senate, but it is clearly contraindicated in the population at large.

Owen Gray said...

It all depends on who the goldbricks are, Lorne. If they belong to the right party, they're not goldbricks.

Anonymous said...

Owen, having had hard experience with our 'correctional' system, Flaherty, in the general population's hierarchy, would be known as 'the supreme GOOF of the joint'. None of 'those' (Harper's)CONS would last a day. All those who are inside, are not bad. And many who should be there, walk among us, wearing suits and uniforms. Is there not a true Christian among Harper and his hench-people? No, because they sold out when they joined that team. Doesn't Boss Harper's preacher ever do a sermon on the poor? Evidently not. And if I hear one more person say Remple is a good performer, I shall remind them, that is ALL it is--a performance--same shit different package. THAT is all.

Owen Gray said...

The faces change, Linda, but the song remains the same.