Wednesday, April 15, 2009

Tax cuts impact quality of life: Study

This is a rare example of a study that shows the negative impacts of tax cuts. Somehow many people seem to think that the government always spends peoples' Tax breaks money unwisely and that the results are much better if funds are left in individual pockets. Yet individuals waste money on gambling, drink, smokes, junk food and on and on. Of course the government often wastes money too but the government also provides us with our hospitals, schools, roads, and social safety net often rescuing individuals who have squandered the money they had left after the famous tax free day Usually tax breaks benefit the already well off rather than the poor and for those not earning enough to pay taxes it is completely useless.

Tax cuts impact quality of life: study
Last Updated: Wednesday, April 15, 2009
CBC News
Tax cuts could diminish the standard of living for the vast majority of Canadians who enjoy the public services that they fund, according to a study by the Canadian Centre for Policy Alternatives released on Wednesday.
The majority of Canadian households enjoy a higher quality of life because of the public services their taxes fund, the study argues.
According to the report, Canada's Quiet Bargain: The Benefits of Public Spending, the cost of the public services that a typical Canadian household uses annually is the equivalent of about 50 per cent of its annual income.
"What passes for a tax cut debate in Canada is really only half the debate," said study co-author Hugh Mackenzie, an economist.
Taxes pay for services that hold a value in the daily lives of Canadians, Mackenzie said.
"The suggestion we often hear, that taxes are a burden, hides the reality that our taxes fund public services that make Canada's standard of living among the very best," he said.
The study uses Statistics Canada data on government revenues and expenditures to compare public spending in categories including health care, education, social services, old-age security benefits and employment insurance. It also looks at data from the Canadian Institute of Health Information and government figures regarding labour and household incomes.
Using the statistics, the report finds that the average per capita benefit from public services in Canada in 2006 was about $16,952.
Mackenzie and company also argue that about 80 per cent of Canadians would have a higher standard of living if the GST hadn't been cut, and that 75 per cent of Canadians would be better off if their provincial governments invested in public services, such as health care and education, rather than income tax cuts.
"The overall impact of tax cuts — and the cuts in public services that accompany them — has not been addressed in any substantive way," the study states.
"Tax cuts are always made to sound like they're free money to middle income Canadians. They are anything but," Mackenzie said. "We're far better off with the public services our taxes fund than we are with tax cuts."
Any reduction in income tax results in an equivalent constraint on public spending, the study says, and about three in four Canadians suffer from cuts to public spending.
Households with incomes under $110,000 would have been better off if the federal government had not cut the GST by two percentage points and had transferred the money to local governments, according to the paper.
For households with incomes between $110,000 and $200,000, the net gain of the GST cut does not exceed $50 per year, after factoring in the loss of publicly funded services, the study finds.
Overall, the tax cuts implemented in Canada in the last 15 years have had the net effect of reducing the living standards of most Canadians, the reports says.
The study also finds that the number of public services used by Canadians appears to increase as household income and size increase. This is particularly true for households that have children who are accessing publicly funded elementary and secondary schools and seniors who are more likely to use the public health-care system.
"Families with young children will tend to benefit relatively more from the health-care system, whereas families with older children will tend to benefit from the public education system to a greater extent than other types of families," the study states.

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