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Taxes, services don’t move in lockstep

By Mark Milke

Special to the Advocate

“Income tax has made more liars out of the American people than golf,” said the American humourist Will Rogers. Indeed, but let’s not stop there. In Canada, debates over taxes, government and civilization lead some journalists and others into the land of make-believe by setting up straw men to knock down.

For example, consider a recent CBC storyheadlined Not all business people hate taxes — but just try to get them to admit it.

To which one can only say: This is news?

The reporter advanced a general assertion with which no thinking person would disagree — “Taxes are necessary” — to help set up the straw man: Some people are ostensibly anti-tax and how silly is that? It was thus easy to knock down; just mention an essential function like courts or cops that only governments can provide.

The general notion that taxes are necessary was followed by an interview with a former civil servant who said taxes are not a four-letter word; a polling question one would expect to elicit a tax-friendly response (your health care or tax relief, as if this was the only choice); and generic clichés about taxes and civilization.

The reporter even managed to sneak in the bizarre assertions that the Fraser Institute and Canadian Taxpayers Federation are anti-government and “anti-tax.”

The charges are silly, though I don’t mean to pick on the CBC or one reporter.

The healthy preference for moderate government, including moderate taxation, has existed throughout human history. In the English world, it has been a constant since at least the Magna Carta, which put a limit on the king’s ability to overly interfere with one’s property. And one’s money, for the record, is property.

In Canada, pre and post-Confederation politicians asserted the role of government was to protect the citizen from government and to provide basic services, albeit defined rather narrowly.

For instance, a 1940 Royal Commission described Canadian views after Confederation this way: “Government was thought to have met its purpose when it provided for adequate defence, the enforcement of the general law through the equal administration of justice and maintenance of a few essential public works. Within this framework of order provided by public authority, individuals were expected to work out their own destiny.”

But there is a more functional argument for limited government and moderate taxation: governments that attempt too much often do little well. (Insert your favourite government waste story here). Instead of zeroing in on how to make education, health care and pensions sustainable, political attention is fragmented into a thousand-plus directions.

And there is empirical proof on how bigger government rarely produces better government. My colleagues recently looked at the literature on the optimal size of government. They found after you reach 30 to 35 per cent of the economy, government spending has minimal effects on economic and social outcomes — you’re pushing on a string. This is not a surprise for students of politics. Vested interests such as government unions seeking above-market compensation or businesses looking for subsidies — to use two examples — often swallow up extra taxes.

“Taxes are the price we pay for civilization” wrote the American Justice Oliver Wendell Holmes Jr. in a now-famous 1927 judgment. About then, direct and indirect taxes in Canada amounted to just 13 per cent of the economy. Now, the figure is 38.6 per cent. Taxes as a percentage of GDP have been higher, up to 44 per cent in the late 1990s.

But anyone who thinks Canadians should be taxed more has no historical conception of their still relative highness or their relative ineffectiveness at present levels.

Most Canadians know that a functioning country requires courts, judges and police to protect persons and property; social workers to rescue children from awful situations; and for governments to carry out other functions which will, in turn require taxes.

But here’s a thought: Switzerland is civilized. That alpine country has universal health care, an educated population and a safety net. The taxes-to-GDP ratio in that country amounts to 33.4 per cent, five points below Canada.

Here’s the point: After some basic level of taxation, more taxes do not buy more “civilization,” they simply buy you more government, and the two are not the same thing.

Mark Milke is a senior fellow at the Fraser Institute and author of Tax Me I’m Canadian! A Taxpayer’s Guide to Your Money and How Politicians Spend It. This column was supplied by Troy Media (www.troymedia.com).

 
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