Tuesday, August 02, 2011

U.S. could fix debt crisis by being more like us

Americans could fix their giant deficit/debt crisis relatively painlessly. All they have to do is become more like Canadians.

Specifically, they just have to pay the same level of taxes that Canadians do.

U.S. politicians have spent the last few weeks in a destructive exercise in brinkmanship over raising the country's debt limit. Republicans said they wouldn't allow more debt without a plan to reduce the deficit, and the plan couldn't include any tax increases.

Democrats didn't want the deep spending cuts that would be required. Failing to raise the limit could mean the U.S. couldn't borrow the money to pay its bills, causing all sorts of international economic problems.

A last-minute deal appears to have put off the crisis for a while.

Basically, the problem is simple. The U.S. spends much more than it takes in. The Tea Party politicians pretend it's feasible to cut spending by 40 per cent to deal with the gap. It's not.

But there is a solution. The U.S. collects taxes equal to 24 per cent of its GDP. If the take was increased to 31 per cent - the amount collected in Canada - the current year's deficit would fall from $1.5 trillion to $500 billion. (Instead, the compromise deal imagines spending cuts that would reduce the deficit by about $200 billion.)

Canada manages with that level of taxation. Our economy is stronger than the U.S. economy. Our society, arguably, functions better. Creativity and entrepreneurship aren't strangled. We grumble, but the tax burden isn't really onerous - people aren't fleeing for tax havens so they can pay less.

But a large chunk of Americans have bought into the dual notions that they are heavily taxed, and that all taxes are bad.

Neither is true. In fact, if the Americans increased overall tax revenue as a share of GDP to the average for OECD countries - 34.8 per cent - they could have a balanced budget immediately, without cutting anything from spending. No more mounting debt for future generations to repay, no risks of default or massive interest costs on rising borrowing.

Most of us grumble about paying taxes, especially when governments do goofy things with our money - like spending on fast ferries or stadium roofs or submarines that don't work.

But the current level of taxation in Canada isn't obviously punitive. We share the costs of services like schools and health care and police and get obvious value for much of the money we send off to government.

OECD countries function well, for the most part, with their levels of taxation. Even Germany, with tax revenue at 39 per cent of GDP, seems to manage.

It's not like the money disappears. Seniors get pensions and spend the money in their communities. The navy employs a few thousand people in Victoria, and buys services from scores of companies. We drive on the roads that our tax dollars pay for, and call the police when we need them. And the police, in turn, spend their salaries in the community.

It irks some that the payments are compulsory. I can boycott stores I don't like, but I have to send a cheque off to Revenue Canada. People without kids pay for schools, and those who oppose the war in Afghanistan pay for bigger military budgets.

But that's the price of living in a democratic society. It's pretty good value.

We can and should go wild when governments waste our money. We shouldn't pretend that paying for the things we need and use is somehow a bad thing.

Many Americans, and their politicians, seem trapped in a dangerous fantasyland.

And there is a real risk that the blind anti-tax fervour, fed by some elements of the media, will catch hold in Canada. To some extent, it already has. The Campbell Liberals treated taxes as inherently bad. And at least some of the anti-HST sentiment comes from people who oppose all taxes.

The consequences of the American tax delusion are on display. Let's hope we learn from them.

Footnote: There are still serious questions about how taxes should be collected. The initial HST opposition, for example, came in large part because it was supposed to shift $1.9 billion in taxes from companies to families. That's been a trend in B.C.

Since 2001, the share of government revenues derived from direct corporate taxes and royalties of various kinds has fallen by more than 50 per cent.


Anonymous said...

Great article! I laughed so hard. Everyone knows that higher taxes don't work. They didn't work in Weimar Germany, California and lots of other places and times. Kenedy lowered tax rates and the next year was a 50% increase in tax returns. Everyone knows this and this is why this article is so brilliantly funny. At no point in time does the author let up and he leaves the reader thinking he's a moron and is advocating higher taxes.
Again Brilliantly funny article. Keep up the humour.

Robert P

Rod Braithwaite said...

@ Robert P. - Sir, your comment is devoid of accurate facts. Your only attempt at evidence based argument (Kennedy/50% item) is supported with made up statistics - I hope you are merely mislead and not deliberately creating such falshoods. Please note that "everybody knows" as a citation is not acceptable. In closing, I offer a classic peice of advice: BETTER TO BE SILENT AND BE THOUGHT A FOOL THAN TO SPEAK UP AND PROVE IT,

Further, your rant is is full of sarcasm, and rely's primaily

Anonymous said...

Sadly, Harper is trying to be Bush III.

Speaking of the HST...

The shift from corporate coffers to family funds has landed the BC Liberals a massive 'revenue neutral' windfall of cash. Imagine how the BC deficit would look if we added the $2 billion that business saved to deficit reduction.

Anonymous said...

Once upon a time. Politicians allowed corruption in their ranks. Eventually, they find the country owned by the very corporations, they took the money from.

Campbell thieved our assets and sold them. He also worked for Harper. Harper was drooling at the mouth for, BC's HST. So, Campbell, Hansen and Harper, FORCED the HST onto the exact citizens, who could least afford it. The HST was just a scam, to thieve from the people, to give to big business.

Where are the BC jobs the HST was to bring? BC lost 12,000 jobs in June alone. Where is the, "trickle" down money, from what big business saved by the HST? The HST drove jobs and businesses, right out of BC. All the HST has done is, drive the cost of living, right up through the roof.

The BC people, have had their assets and natural resources thieved from them. This province, has vast natural resources. There is no way, BC should be in this horrendous financial mess. However, Campbell, the BC Liberals and Harper, with their corruption, has made BC terminally ill.

Don't even begin to think, Canada is out of the woods yet. The U.S. will collapse again. This is just a reprieve not a solution, they still have the same problems, as before. The U.S. is still Canada's largest trade partner. Canada will have to search out, new trade country's.

Not only that, wars are unsustainable. Not one country, in this world, can afford a war. The giant gas and oil corporations, will just have to go to hell. That is who, drives wars and causes recessions, and always have.

I am sad as can be for America. They are always the country that gives the most, to foreign country's disasters. Has any country returned the favor?

The U.S. will also have to tell the gas and oil giants, to go to hell too. NO MORE WARS. How many trillions are wasted on WARS? They hunt down terrorists everyday, without starting a war.

All the trillions of dollars, should be seized from the giants. Kick them out of every country. And, the world will become sane.

And, don't tell me I'm wrong. I am older, I have seen these recessions and wars, far too many times. And just who, is behind them all.