Not all economists want tax cuts

As the Liberal and Conservative parties offer duelling tax cuts in an effort to buy voter support, not all economists agree on the benefits of stripping the federal coffers.

In fact, a group of 66 economists has signed a statement — entitled “Call to Action” — warning such tax breaks will severely curtail the delivery of social services and widen the gap between rich and poor in Canada.

The statement was issued by a coalition of labour organizations, the Anglican Church and social justice advocates, collectively known as the Vote for a Change Campaign. The group is critical of the Liberal Party for declining to increase taxes on income trusts, as well as the Conservative Party, which has promised to cut the GST, raise income taxes and essentially do away with capital gains taxes.

“The Conservative Party’s proposal to eliminate income taxes on reinvested capital gains is especially damaging, because it would deliver very large tax savings to a tiny group of high-income Canadians,” said Jim Stanford, economist with the Canadian Auto Workers. “Moreover, defining, monitoring and policing the six-month reinvestment requirement would create an administrative nightmare for the federal government.”

While the Conservative campaign has said the capital gains issue will only cut federal revenues by $750 million over five years, the economists endorsing the Call to Action calculate the real cost will be closer to $2 billion.

“This raises significant questions about the reliability of their overall fiscal plan,” said John Loxley, Professor of Economics at the University of Manitoba. “The uncounted costs associated with this measure alone would reduce estimated federal surpluses by several billions of dollars over the term of the next government.”

The group says the benefit of such a move would be concentrated among the wealthiest Canadians.

“Over 40% of taxable capital gains income is declared by the tiny fraction of Canadians who earn more than $250,000 per year,” said Andrew Jackson, economist and the national director of social and economic policy for the Canadian Labour Congress. “They are the ones who will reap the benefits of this policy, which would greatly exacerbate inequality in Canada.”

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com