Monday, July 13, 2009

The Proper Response to the Conference Board

The Conference Board announced earlier today that the provinces will have no choice. Either they must cut their spending, or be forced to raise taxes. I'm not going to argue with the choice being presented, because I am not in a position to know whether or not this is true. However, if we do take this choice seriously, the right decision would be to raise taxes.

Before anyone responds with "You can't tax, it will make the economy worse", I am not suggesting such taxation. In other words, not taxation that would span all income brackets, all businesses etc... It is possible to strategically tax. In fact, Barack Obama suggested it during his election campaign, and is working towards it.

The idea is to tax those that can afford to be taxed, and still contribute as much as they did previously to the economy. The fact is that the rich of this country, and in America, have consolidated a lot of money. And there is no reason that we cannot raise taxes from this income bracket to balance our budgets.

This may sound like a redistribution of income, and to some extent of course, it is. However, the stimulus that governments are providing to the economy are a requisite for our economic recovery. Virtually every developed nation is following this path. Without this stimulus, the recession would be irrevocably prolonged. It would therefore be very misguided to cut taxes.

Cutting taxes would only further compound the problem if we are to continue to provide much needed stimulus. The only choice should be to tax, and the best form of taxation would be one that increases the rate of taxation for higher income brackets.

This would have no effect on the economy for two reasons. First of all, many of those in the higher income brackets do not invest much of their fortunes, and consequently most of their wealth provides nothing to them, nor the economy.

And secondly, this taxation would be a measure allowing for economic stimulus negating any recessive effect of taxing the higher income brackets.

In conclusion, the provinces should raise new taxes, or increased taxes, on the richer Canadians, assuring thereby that the economy recovers. After all, according to many of those that would be taxed, a good economy benefits everyone.
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