Stephen Gordon wishes there was a way to disentangle sensible tax policy discussions from politics:
The Conservatives implemented two major tax cuts in the past five years: the two-point reduction in the GST, and the three-point reduction in the corporate income tax (CIT) rate. The GST cut was almost certainly a mistake, but no opposition party has challenged this decision in the election campaign.
On the other hand, every opposition party has promised to increase the CIT — the tax that is most harmful to economic growth. What is going on?
I see two answers to that question, and both are based on the presumption — possibly well-founded — that voters do not understand the concept of tax incidence. If you don’t understand how corporate taxes are passed onto workers, then the idea of taxing ‘wealthy corporations’ has a certain appeal: “I’m not a wealthy corporation, so it’s no skin off my nose.”
But of course, it is. So the only question is whether or not the opposition parties campaigning on increasing corporate tax rates understand who actually pays the CIT. If they do not understand that higher CIT rates reduce wages, then their competence as a government-in-waiting leaves something to be desired. If they do understand, then they are being less than honest about what the effects of their proposals will be.
The most efficient tax is broad-based and as close to non-distorting as possible. That is also the most hated form: the Goods and Services Tax. The Tory cut in the GST was terrible economics, but great politics. There, in a nutshell, is why stupid tax policies are the only ones on offer in the election campaign — because sensible policies require people to actually face up to the costs of the government they want. People much prefer the illusion that “someone else” is paying for the goodies.
