Tax crusade two-faced — both ugly

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This article was published 09/02/2011 (5382 days ago), so information in it may no longer be current.

The tax-cut crusade has two faces, according to Nobel Prize-winning American economist Paul Krugman.

“Smiling supply-siders say that tax cuts are all gain, no pain; scowling starve-the-beasters believe that inflicting pain is not just necessary but also desirable.”

The starve-the-beasters — the beast being government — hired the supply-siders, Krugman continued in a September 2003 New York Times article. “Indeed, they created them, because they found their naive optimism useful.”

That “naive optimism” was the supply-side promise that tax cuts increase, not decrease, government revenue by freeing business and investors to build new plants, buy equipment, create jobs and thus fill public coffers.

The first supply-sider was David Stockman, former U.S. president Ronald Reagan’s first budget director. In a moment of stunning frankness, Stockman acknowledged that despite his Laffer curve charts and calculations: “None of us really understands what’s going on with all these numbers.”

He is also the author of the starve-the-beast phrase. It discloses supply side’s dark side, the use of tax cuts, especially for the rich and business, to reduce permanently the size and scope of government. The Wall Street Journal once even argued taxes should be raised on the working class to make them hate government by getting “their blood boiling with tax rage.”

Stockman’s legacy, sustained over nearly 30 years of Republican supply-side, starve-the-beast fiscal policy, is nothing less than America’s current $15-trillion national debt and $1.27-trillion annual deficit.

Now, as the U.S. careens toward an unknown fiscal reckoning with enormous implications for the world, supply-siders and starve-the-beasters have found a new champion.

Since his election in 2006, Prime Minister Stephen Harper has been using alternating doses of right-wing social and tax policy to accomplish his goal, revealed in an interview during the 2008 election, “to make conservatism the natural government philosophy of the country.”

On the social side, his boldest move so far was killing the long-form census, the baseline for all social and economic policy in Canada. That spun Canada’s planning sector into turmoil. The social policy and planning and agencies of all three levels of government are working flat out to find sources and ways to replace the census’ uniquely vital data about population and social trends.

Leaving Canada’s future requirements for hospitals, schools, personal care homes, housing, welfare and infrastructure of all kinds to guesswork is irresponsible in the extreme.

On the tax side, Conservative cuts to date will result in forgone federal revenues of $220 billion between 2007 and 2013. Almost 30 per cent — $60 billion — will go to Canadian big business.

The tax cuts will be financed, not through the supply-siders’ dream of an economic boom, but with borrowed money. Ottawa is forecast to post a $169-billion deficit over the same period.

Harper is not the only supply-side, starve-the-beast tax-cutter. Jean Chrétien’s Liberals began the spree just before the 2000 election with $1 billion in tax cuts for individuals and businesses. The corporate tax rate then was 29 per cent. Both Liberal and Conservative governments have continued to chop it, from 18 per cent in 2010 to 16.5 per cent this year to 15 per cent, the lowest statutory rate in the G7, on Jan. 1, 2012.

Michael Ignatieff’s Liberals supported Conservative corporate tax cuts until this year. Apparently only now discovering the big federal deficit and smelling an electoral opportunity, they are signalling they will vote against the March budget and trigger an election unless Harper cancels the final 1.5 per cent reduction. They want its $6 billion for social programs and have public opinion on their side.

Philip Cross, Statistics Canada’s senior economic analyst, says corporate tax cuts are such a small factor in business decisions their impact can’t be measured reliably.

“A couple of billion dollars (of tax-cut savings) is a drop in the bucket of corporate income here,” he told The Canadian Press recently. “It’s trivial.”

Meanwhile, in a line stolen right out of the Republican Tea Party playbook, Harper, Finance Minister Jim Flaherty and other cabinet ministers are flying around the country re-branding big business as “job creators” in the hopes of permanently inflicting the U.S. supply-side, starve-the-beast tax mantra on Canada.

Frances Russell is a Winnipeg author and political commentator.