Justin Trudeau's tax plan is good policy and great politics
May 4, 2015

Justin Trudeau's tax plan is good policy and great politics

Going as far back as Justin Trudeau's leadership election, he has consistently kept his major campaign planks close to the vest. Little tidbits, like the policy on marijuana, come out in carefully crafted morsels, but for the most part we are left guessing at what his first federal election campaign platform will be based on the vague rhetorical positioning his team has let out over the last year. 

Finally, however, we have some clarity. Trudeau has announced a big series of changes to tax policy. They do a couple things. Firstly, they reverse the two much criticized regressive new tax policies from Harper: income splitting and doubling the TFSA contribution limit. Secondly, he is going to increase taxes on income over $200k from 29% to 33%. All of this new (or at least new relative to Harper's plan) money coming largely from higher up the income ladder gets moved downwards either through a 1.5%  tax decrease in the 44k to 89k tax brackets, as well as pumping a lot more money into children benefits, crucially tying these into income as well. 

The net effect is to make our government system a few percent more progressive than it was before. On this blog I have long claimed that income inequality is a major problem we face, ultimately deriving from the numerous regressive forces in society that make it easier for the rich to get rich, and keep the poor being poor. Government is, first and foremost, a massive wealth redistribution engine that through a progressive taxation and spending scheme helps offset these recessive forces in society. Despite this, we still face significant inequality. This policy would be a tweak in the right direction. 

It isn't just good policy, it is great politics. The majority of the electorate is in that middle class category that is going to benefit (although seniors won't like the TFSA not doubling and don't benefit from the child benefits). Myself, as a PhD student hoping to get a job and have kids in the future, I'm very likely to be smack dab in the demographic that benefits. But even if I wasn't, it is the right thing to do and is undoubtedly going to popular. 

The Conservatives, of course, will demagogue the tax increases. Any deficit neutral tax change by definition will have some increases and some decreases. The National Post editorial team has already slammed it as "class envy".  We have seen this kind of demagoguery on the idea of making the tax code more progressive before. My guess is that it is a losing political position, that the sense among the public that our society is too unequal is too strong. 

The 30,000 foot view
Taking a 30,000 foot view of a political landscape with three dominant parties, the party on the right generally wants to decrease the size of government, the party on the left wants to increase it, and the party in the center wants to leave it somewhere close to where it is. The problem for all centrist parties is that it is hard to advocate compelling changes that people vote for when your big picture position is not to keep things roughly where they are. 

That said, over time the political landscape tends to change and what often happens is that all parties move simultaneously over the course of, say, a decade. On lots of social issues, for instance, the left moves quickly, the right moves barely at all, and the center moves slowly. One of the biggest changes, as I've noted before, is that the amount of political space between the Conservatives and the NDP (and indeed in other countries a similar pattern holds) has shrunk considerably which leaves less and less unique space for the Liberals to carry out their own identity. 

Given the above dual problems of being positioned in the "keep government spending roughly the same" category with less and less distance between them and the Conservatives or NDP, changing the tax code to be more progressive is the perfect policy. It keeps the basic constraint of a similar amount of government funding, but makes a meaningful improvement by changing the level of progressiveness in the system. 

Not everyone is going to love the Liberals for this plan. Many fellow progressive bloggers are going to want more net taxation to pay for various policies they think are good. I often join them. But if we restrict ourselves to keeping net taxation relatively constant, this is a good plan. 

Thoughts on this post? Comment below!

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Gyor said...

It will also never happen in the real world,.like how Wynne never gave us the most progressive budget in a generation, and instead we got hydro privatization and laid off nurses and teachers.

Or when Jean ran for Prime Minister he promised to end both Nafta and the GST, amoung countless other promises broken promises and instead we got a 40% cut from the social safety net, billions stolen from EI while the many of the people paying into it were disqlauified from receiving, the wars we should never have taken part in, the knowing lies about Kyoto accords, I could go on.

Don't believe the lies.

bazie said...

This is always a possibility, certainly campaign policies don't by any means always end up being implemented. That said, we should nonetheless still praise good policies when they are proposed. The more signalling we do as a society that yes this is something we want, the more likely it is to pass.

Anonymous said...

The tax shifting might be revenue neutral, but the proposed child tax credit is NOT revenue neutral - $2 billion unaccounted for. Any policy that causes a deficit is BAD policy, IMO.

bazie said...

By definition, all spending policies contribute to deficits. It is still an open question how that 2 billion is paid for, but the simple fact that it is a spending plan and thus costs money doesn't really phase me.

My larger worry is that this deficit neutral tax redistribution is just at too low a number (effectively it is Harpers number). They should have taxed more.

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