The Conservatives’ election pledge to cut the GST from seven percent to six may have been good politics, says the Fraser Institute’s resident tax expert, but it’s bad economics.
Hans Grubel, in a recent edition of Fraser Forum, said a cut in the income tax would be much more beneficial to the economy. Grubel’s reasoning may seem to fly in the face of traditional economics, which routinely calls any sales tax “regressive”; but his logic is impeccable. He relies on the dictum that taxing an activity reduces it, and subsidizing an activity will bring more of it. Consumer taxes reduce consumption, stimulating savings and investment; income taxes reduce the incentive to earn or invest.
Similarly, the $100 per month ‘baby bonus boost’ may have good political optics, but it has no justification in either family or economic policy.
With some families paying as much as $1,100 a month for child care, the Tories’ baby bonus—especially after the clawback of taxes—is less than ten percent of what’s needed to provide child care. That’s not much help.
More important, the baby bonus—to whatever extent it might help families meet child-care costs—still encourages them to warehouse their children during the day so both parents can work to pay the tax-man.
By comparison, the CHP’s Family-Friendly Tax Credit has a laser-like focus on strengthening the family: it would provide five to ten times as much money—but only to families that choose to provide day-time care for their own children. That’s a clear public policy focus that says, “Parent care is a positive social benefit; it should be encouraged.”
Some economists have calculated that if the one-third of the workforce’s second-income earners were to all stay home, it would cost governments about $34 billion a year in taxes. Of course, under the CHP’s Family-Friendly Tax Credit plan, not all those second-income earners would opt out of the workforce. Some two-income families are what statisticians call “DINKs”: Dual Income, No Kids. They don’t need child-care. And some dual-income families with children would choose to continue to have day-care workers or nannies care for their children during the day.
Still, if the CHP plan were adopted, and half the second-income earners decided to follow Dr. Laura Schlessinger’s advice—her most recent book is entitled Don’t Have Them if You Won’t Raise Them—the tax loss might be about $17 billion. Add to that about $18 billion of income taxes reduced by the tax credit, and the cost is about $35 billion. But, as Hans Grubel says, an income tax cut is better for the economy, and this is an income tax cut.
But far more important is the personal benefit to children of growing up in a family under parent care, which research shows is almost always more beneficial, long-term, than institutional care. Add to that the social benefits of strengthening the married, two-parent family—less crime, less substance abuse, less premature sexual involvement, less teen pregnancy and fewer abortions are just a few of the benefits—and the long-term savings to society will far, far exceed any loss of tax revenues.
It’s time Ottawa learned that families exist to produce and nurture the next generation of citizens, and to transmit the culture to them—not to increase the reach of federal government power over our lives by pouring their wealth into the federal coffers.