Common Front for Social Justice

For Immediate Publication

June 16, 2008.

TAX REFORM by Janice Harvey

Last week I wrote about the regressive tax reform proposals now released by Finance Minister Boudreau. The idea is to shift the burden of taxation from progressive income taxes, where those who have more pay a greater share of the tax burden, to regressive consumption taxes where everyone pays the same tax rate regardless of the ability to pay. Now that the proposal is in the public domain, we can take a closer look.

One proposal is for a flat income tax of 10 percent rather than the current four-bracket graduated income tax. With a flat tax everyone pays the same rate no matter what you earn, and so the higher tax bracket you are in the more you save. A single person who makes $15,000 will save $20; $25,000 will save $359; $40,000 will save $522; $60,000 will save $1,018; $100,000 will save $3,160; $140,000 will save $6,188.

A one-earner family with two children earning $15,000 will save nothing because they pay nothing. Savings at other levels track upward at slightly higher rates than the single income earner except at the $25,000 level where savings are only $219.

The amount of savings are important because reduced income taxes will be partially offset by a two percent increase in provincial sales tax. The cost of living will increase because every purchase will be more expensive. Those who save the most in the income tax cuts will easily absorb the extra sales tax for a net tax saving. Those who save nothing because they are in a zero tax bracket will pay this new tax directly out of their existing income. Those who save a few hundred dollars may or may not break even. The bottom line is, lower income earners will pay a greater portion of their total income on taxes than higher income earners, amounting to a shift in tax burden from the well-to-do to the barely-getting-by.

Minister Boudreau acknowledges this, suggesting it would be an incentive for people to make more money. An editorial in this paper suggested it would motivate people to work harder since they won't move to a higher tax bracket with an increased salary. This is good news to the folks working two minimum wage jobs just to pay the rent, or those $25K a year folks who are holding back on taking that $60K job because they don't want to pay higher taxes.

What about the corporate tax rate? The proposal is to cut it from 13 percent to as low as 5 percent, the rate small business now pays. As with the income tax flat tax, the small businesses will save nothing while corporations will put money in their pockets. Yet the costs to the small guy will increase every time they pay the harmonized sales tax and the proposed carbon tax.

Finally, there is a carbon tax. This would be an additional tax mainly on fuels – gasoline, heating oil, natural gas, diesel, etc. These products will be double taxed when the increased sales tax is applied on top of the carbon tax. The theory is that a carbon tax will reduce the demand for products that produce greenhouse gases which contribute to climate change. But if that product heats your house in the winter or gets you to and from work, there isn’t much choice in whether or not to buy it. In any case, the soaring oil and gas prices are exerting far more pressure on demand than any carbon tax would. Thus the carbon tax itself will not result in greenhouse gas reductions. 

Minister Boudreau says the money will pay for New Brunswick’s climate action plan. But the carbon tax is not earmarked and will simply go into general revenues. Unless the provincial budget includes the climate action plan – which it doesn’t – don’t believe the line that it is funding an environmental protection program. It isn’t.
Which brings me to my final point. How will income and corporate tax cuts affect the provincial bottom line? People love tax cuts, but they also love high quality public services which taxes pay for. 

The tax cuts amount to $500 million, one eighth of total in-province revenues of $4 billion. Additional sales taxes will raise $250 million, carbon tax another $100 million. That leaves a shortfall of $150 million. Apparently this is to be dealt with through a combination of "belt tightening" and attracting new people and investment to the province. 
As for belt tightening, where might this be done? Education? Health? Infrastructure? Environment? And the idea that people and investment will flow into the province to make up the difference? I wouldn’t take that to the bank.

Janice Harvey is a freelance columnist and can be reached by e-mail at waweig@nbnet.nb.ca.