Economics and the mid-life crisis have much in common: Both dwell on foregone opportunities

C'est la vie; c'est la guerre; c'est la pomme de terre . . . . . . . . . . . . . email: jpalmer at uwo dot ca

. . . . . . . . . . .Richard Posner should be awarded the next Nobel Prize in Economics . . . . . . . . . . . .

Monday, December 12, 2005

Cutting the GST:
"Stupid, stupid, stupid, stupid"

Shortly after Stephen Harper's proposal to reduce the GST, I wrote,
Stephen Harper seems to be drifting increasingly away from sensible economic policies. This drift is both disappointing at best.

His latest pronouncement is to promise to lower the GST from 7% to 5%. For those of you outside Canada, the GST is the Goods and Services Tax, something like a national sales tax or value-added tax. Lowering it would not be a great economic policy.
Many readers, especially at the Western Standard, disagreed with my position (see the comments there).

My colleague, Jim Davies, obviously agrees with these views [In the interest of accuracy, I learned most of this material from him, so it is probably better to say that I agree with his views]. Here's is an excerpt of his comments made for the CBC [h/t to Worthwhile Canadian Initiative].
"Most serious work done by economists who specialize in public finance indicates that the GST is a more efficient tax source than the income tax," Davies told the Canadian Press. "If the income tax cut is designed properly, it can provide similar benefit to lower-income taxpayers."

"Stupid, stupid, stupid, stupid," he said.
The same CBC piece quotes Bill Robson at CDHowe as sharing these views:
"If you want tax cuts that are going to promote work, going to promote saving, help us invest more and raise living standards in the future, the GST is not the tax you would go after."

Robson said it would be better to cut personal income taxes.
If we want to reform the GST, let's get rid of the exemptions and broaden its base.
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