Commentary

February 15, 2013 | APPEARED IN THE CALGARY HERALD

Want a sales tax? Drop another tax

EST. READ TIME 4 MIN.

There might be a thousand reasons why people hate sales taxes. Here are three: First, they’re visible; second, in Alberta, where no provincial sales tax exists, there is justifiable pride that people have escaped at least one tax applied elsewhere in Canada; third, many Albertans rightly fear that if a government introduced a new tax, it would be just another way to separate taxpayers from their money and to spend more and inefficiently so.

All that noted, a provincial sales tax makes sense. But before anyone writes in to wonder if I’ve suddenly become a giddy convert to tax happiness, let me be clear: limited, moderate government is desirable for empirical and common sense reasons: Governments that try to do too much often do little well.

Also, in conjunction, taxes should be moderate and sensible—the latter of which I’ll shortly explain.

On government, its proper role is one that is narrow for the politicians and civil servants we hire, and focused.

That means, for instance, governments don’t need to be involved in picking winners and losers in the marketplace through corporate welfare and other forms of crony capitalism. They do need be more focused on the protection of property and persons.

To wit, it makes a lot of sense and is compassionate to protect people and their property; to rescue kids from awful situations; to protect borders. It makes little sense to sacrifice tax proceeds up to some politician’s latest silly idea on how to diversify the economy.

However, even more modest and limited governments still need tax dollars. That leaves the issue of how to fund the “Leviathan,” as the philosopher Hobbes once labeled the state.

Here, one doesn’t need to reinvent the wheel. Long before pundits and professors across Alberta started discussing whether a provincial sales tax makes sense, my colleagues at the Fraser Institute studied and published on this exact topic. That includes Michael Walker, the founding executive director of the Institute who as far back as the 1970s discussed such matters with Nobel laureates such as Milton Friedman.

I mention Friedman because he once stated that while he was in favour of any tax cut, he noted that “some tax cuts are better than others.”

To gain insight as to why Friedman thought this, let me reference some 2007 work by three colleagues who looked at what types of tax are more or less damaging. Admittedly the title was dry--‘Tax efficiency” but the subtitle makes the point: “Not all taxes are created equal.”

By “damaging,” they and others mean that some taxes greatly hinder the ability of an economy to prosper, while other taxes are less of a hindrance. That matters, because jobs and great living standards don’t appear like magic; they result from millions of individual decisions. Those decisions can be negatively impacted by taxes that are more harmful than others.

So for example, in Alberta, you could tax the daylights out of business with higher corporate taxes and then see them flee to Saskatchewan or Texas. You could tax high-income earners as does Quebec, and then make it difficult to attract physicians with a needed specialty to Alberta. That’s unhelpful.

Here’s the point: the wrong types of taxes and at the wrong levels are economy-wrecking, job-killers. A society gets the best bang for the buck when those taxes are lower. Like it or not, a sales tax is the least damaging tax that exists.

Here’s another reason why a sales tax makes economic sense: when people visit Alberta, a sales tax would ensure visitors help contribute to the tax coffers, to the “upkeep,” of the province. That would help lighten the burden on the rest of us. Also, as long as sales taxes come with government refund cheques to the poorest, they are workable.

But several caveats: First, any talk of a sales tax in Alberta should be accompanied by this ironclad requirement: it must be revenue neutral, or forget it. Any sales tax must be completely offset by the abolition of some other, more harmful tax, such as personal income tax.

Second, any tax reform premised on the notion Alberta has a revenue problem is misguided. Adjusted for inflation, Alberta’s per capita program spending jumped to $10,526 per person this year from a mid-1990s low of $6,825; that’s a 54 per cent jump in real terms. Alberta’s biggest problem has always been that it lets spending get out of control. The exact tax mix is secondary to that issue.

Until Alberta deals with its high spending problem, it won’t matter what kind of taxes the provincial government levies—unless of course, the provincial government hopes to turn Alberta into another high-tax, economy-wrecking, job-killing Western version of Quebec.

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