Emphasizing neutrality with respect to the progressive/regressive spectrum
Nov 29, 2011

Emphasizing neutrality with respect to the progressive/regressive spectrum

Deficit neutral bills are a stalwart tool of the savvy politician. They allow for the sidestepping of the often raucous and partisan debates about the size of government and the size of deficits. With deficit neutral bills, there is a sense to which the policy can be considered on its own merits and not as part of a never ending battle on these larger issues. For the most part, I think this is a good thing that allows for more effective implementation of good policy.

It was imperative, for instance, that the introduction of the Harmonized Sales Tax (HST) in Canada be close to revenue neutral such that it could be sold as a more effective tax policy opposed to a policy that substantially raised (or lowered, for that matter) net taxes which would be rejected by partisans for that fact alone. Of course, we should also have debates about issues such as lowering the deficit and what level of taxation and spending should occur - and they certainly do occur - but it is good to have these discussion decoupled from beneficial policy which stands or fails on its own merits.

Progressive/regressive neutral bills:
What is far less common is to also attempt neutrality with regards to the progressive/regressive spectrum. That is, at any given point in time there is a distribution in the relative rates of taxation, rates of spending benefits, and rates of wealth among the population. A proposal that is neutral with regards to the progressive/regressive spectrum leaves these relative rates unchanged. As such, it would not substantially cause a relative harm or benefit for either the richer or poorer classes at the expense of the other. 

Take, for example, the increases on the caps for Tax Free Savings Accounts up to $10,000 per year. Encouraging savings is something we sorely need and we ought to implement policy to do just this. However, as I have argued, this specific implementation is far from being neutral on the progressive/regressive spectrum. Or take the example of rising electricity costs in Ontario due to green energy proposals (which I largely support) but has costs which represent a higher proportion of wealth on the poorer majority than the richest quintile (as well as select industries). Either of these, and countless others, could be adjusted to make them neutral with respect to the progressive/regressive spectrum.

The simplest and largest influence on the wealth distribution is the progressive tax code which means that people with higher income (notably not higher aggregate wealth) pay a higher proportion of income taxes. Usually debates over changing these rates are highly partisan and make it an almost intractable issue to come to pragmatic resolutions over and is instead a function of the party in power. However, if we could get past this then we could adopt some standard measure of the progressive/regressive spectrum such that new bills could easily be adjusted to neutrality via small changes to the tax rates. This allows for effective bills to be easily adjusted so they are neutral both with regards to deficits and with regards to the progressive/regressive spectrum. 

Deficits vs the wealth distribution in general:
The same assymetry in attention is true more broadly where issues of deficits in general get a lot of attention while issues of wealth distribution do not (although we can thank the Occupy movement for partially reversing this trend). As such, the deficit issue is more often addressed than the progressive/regressive issue is. This often leads to bills that improve the deficit situtation but harm the wealth distribution situtation simply because the latter is not given priority.

It is actually even more pernicious than this. The rhetoric of deficit reduction and fiscal responsibility is used as an excuse to really transform the progressive/regressive spectrum, often without being even remotely effective at deficit reduction. Take, for instance, the Republicans' unwavering commitment to slash spending (which overwhelmingly helps the poorer majority) entirely in the name of deficit reduction yet also forced through the extension of the Bush era tax cuts on the rich despite it being the antithesis of deficit reduction. This is a wealth distribution issue - an ideological issue - disguised as a deficit issue.

One major problem is that the default course of action is neither deficit neutral or neutral with regards to wealth distribution. If we simply do nothing and follow current policy as is, then deficits are set to considerably rise and the wealth gap is set of considerably widen in the medium term in both the US and Canada. It is a good technique to set aside these issues to pass pragmatic and effective policy. However, this only works in the context of having a broader conversation that addresses the problems inherent in the status quo and finds ways to address them.

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