Saturday, February 25, 2012

Two economists recommend extending sales tax to food and other exempt items

Economists Michael Smart of the University of Toronto and Jack Mintz of the U. of Calgary claim that the manner in which the Canadian government collect sales tax is among the most inefficient in the advanced world.

It would be much more efficient to tax food and thus make food more expensive for those who can least afford it. To be fair these worthies do recognise this and recommend that the sales tax rebate be increased to make up for the cost. So one forces the poor to apply for a rebate which they will only get some time after they have paid the taxes.

Governments could reap an extra 39 billion a year in revenue. Of course the economists do not suggest as an alternative that corporate taxes should be increased or the income tax made more progressive.

Michael Smart noted "The problem likely political rather than economic". Correct and if we wanted to be more efficient economically we would stop paying the huge costs of keeping the elderly alive during their final years when medical costs are highest. We might even consider recycling them as Soylent Green to be even more efficient. The problem with this would be political rather than economical. Of course the economists note that the increased cash could from taxing food could even be used to cut taxes in other areas!

The GST general sales tax has been quite unpopular. As Smart notes:"There is some evidence that taxpayers respond negatively to highly visible sales taxes on day-to-day purchases like groceries, and they may not perceive a link between sales tax base-broadening and enhancement of income tax credits." In their paper the economists suggest their own political spin. They recommend renaming the GST tax credit "The Food Tax Rebate". No doubt consumers would prefer not having their food taxed in the first place.

The economists say that value added or consumption taxes are preferable to other forms of taxation. Why? Because they are regressive in that the rich and poor pay the same percentage? Oh no! These economists are concerned that not taxing food subsidizes the rich! For more see this article.

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