Late last week, Toronto city manager Joe Pennachetti—who usually stays out of controversial public debates—gave a speech in which he made the contentious suggestion that the city needs new taxes. “We do not have the revenue tools that we should,” said Toronto’s top bureaucrat, indicating that if we want to invest in transit and housing, we need more cash. He’d prefer to see the city get it through either a share of the HST or the power to implement a sales tax of its own.
Such taxing powers are already used in other large North American cities like Chicago and New York. Whether it happens here may depend less on the current mayoral race and more on the impending Ontario election—if new sales taxes are coming to Toronto, they’ll come from provincial legislation.
Last year, the Liberal government flirted with the idea of a regional sales tax to fund transit, then backed away from it in favour of a plan to raise corporate taxes and gas taxes, and use the existing HST. Tim Hudak’s Conservatives are happy to swat down any tax proposal and claim there’s enough money under the couch cushions to pay for whatever we may need. NDP leader Andrea Horwath stridently opposes sales taxes (or any other fees on “the middle class”) and suggests an increase in corporate taxes.
The discussion about the relative merits of corporate and sales taxes is interesting. The public tends to like the idea of sticking it to corporations and hates the idea of paying more at the cash register.
But many experts say that the concept of corporate taxes isn’t as simple as just skimming profits from greedy billionaire capitalists. As Laval University economist and Maclean’s writer Stephen Gordon has frequently pointed out, corporations tend to try to avoid tax increases through accounting and paperwork tricks. Even when the government manages to make them pay, studies show that the shareholders generally aren’t the ones taking a cut in their dividends. Most of the tax payments are offset by higher prices to consumers and, often, lower wages to employees.
In contrast, sales taxes—or value-added taxes like the HST—are very hard for companies, or anyone else, to avoid, which is one of their virtues. Sales taxes also aren’t fundamentally much different than corporate taxes. They’re just a tax on revenue (which is hard to manipulate) rather than on profits (which are easy to hide or shelter).
For instance, imagine we implemented a “corporate tax” that forced companies to hand over a percentage of all revenue from the sale of goods and services. It would be, essentially, the HST. After all, the HST is a tax on corporate revenue—even if we didn’t see it, the HST would still be there in the price of everything we buy, because if there’s a cost to the corporation, it’ll be worked into the price. But the way it is structured means it’s there on our cash-register receipts, and so we consider it a tax on us.
Because of this perception, many leftists like those in the NDP become very concerned that sales taxes are not “progressive.” They argue that because poor people spend most of their income on goods and services, while rich people save or invest much of theirs, a higher percentage of poor people’s income goes into the tax pool. This is true (and is also true of any corporate tax that winds up hidden in the price of things), but it’s also easily corrected. Right now, the government sends HST rebates to lower-income people, refunding some or all of the money they pay in sales taxes. If a government wanted to, it could make this rebate higher; it could make it so high that it was a “dividend” rather than a rebate, and functioned as a welfare program. In that case, concerns about the burden on the poor would disappear—and we’d be left with a tax on corporate activity that generates a lot of revenue and is hard for corporations and rich people to avoid paying.
I’m probably dreaming to think an adult conversation about tax revenue will factor into the provincial or municipal elections. But I’ll happily fantasize alongside the city manager—because we need it, whether our politicians like it or not.