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Taxation

Keep the income tax cuts, ditch the GST cut

I read in the Star yesterday that the income tax cuts enacted by the Liberals before their fall from power and effective January 1, 2006 may be kept by the Conservative government, which has all along threatened to reinstate them to make room for their GST cut.

I have always been in favor of income tax cuts before consumption tax cuts. Income tax cuts encourage saving and investment, and put more of our earnings in our pockets (at least initially). The only way I save money from the GST cut is by spending money, which is a weird way to think about saving. With an income tax cut, the saving is built right in.

The Liberals love telling you the Conservative GST cut will help the rich more than the poor, where their income tax cuts help the poorest first. This is just wrong.

The very poorest members of our society already pay no income tax due to the basic personal exemption. Cutting the rate on the lowest bracket has no effect on them, and they pay the 7% GST just like the rest of us. The GST cut reduces taxes for everyone, including those who make so little they aren’t paying income tax, and the GST is the more regressive tax so cutting it makes the system theoretically more progressive.

2 replies on “Keep the income tax cuts, ditch the GST cut”

Speaking of progressive/regressive, don’t forget the GST tax credit, which is based on one’s income level.

My preference remains to jack up gas taxes and lower income taxes by a similar amount; only heavy drivers would pay the cost, which they should be paying in the first place considering all the negative externalities associated with driving.

Yeah I totally forgot about the GST credit… As much fun as it is to get a cheque in the mail every quarter from the government, I would definitely do away with this.

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