Friday, June 13, 2008

Revenue Negative, Revenue Neutral, Revenue Positive

Whooee! Well friends an' foes, I was just over to BigCityLiberal MJ's boog where he's on about Andrew Coyne. Coyne says Dion flubbed the presentation of the tax-shift (d'uh...) and should have presented it as a massive reduction in income tax and then explained where the lost revenue would be coming from. Coyne floated the idea that the tax should be introduced as "Revenue Negative".

Coyne's on the money when he sez Dion flubbed the presentation. Bigtime. As to the Revenue Negative aspect, I'll get into that soon. First, I need to take issue with one thing BCL said:
Dion's promise is that, if the average Canadian is going to pay an extra $1,000 to for example heat their home, they will get $1,000 in income tax cuts.
Wrong and wrong.

I disagree with Coyne's across-the-baord Revenue Negative idea and also with the idea that everyone who spends an additional $1000 in Carbon Tax will have their Income Tax reduced by exact same amount. As far as I know, Dion has not made such a promise. I'm open to be corrected but if Dion has any understanding of how a tax-shift actually works to reduce carbon, he cannot make such a promise.

Of course, we don't have any real details from Dion, so far, as to how the tax-shift will be implemented. That's another part of his flub-a-dub on presenting his idea when it was only half-baked. Half-baked wouldn't be so bad if we got a peek at the recipe and knew what the tax-shift would mean for various types of income earners and carbon outputters.

If the eventually to be released LPC plan is like the GPC plan, Revenue Neutrality is at the receiving end -- not at the paying end. Total taxes collected will remain at the same level as now. Taxes payable by individuals will be directly related to their carbon output.

I think that for many middle-income earners, the tax-shift will, indeed, be Revenue Positive. That's positive for the taxpayer, negative for the tax receiver (that's the Receiver General for Canada). Those who have taken or do take measures to reduce their carbon footprint will pay less carbon tax while still enjoying a break on income taxes. Low income earners will be accommodated and those who pay no tax at all will get "refund" cheques - just like many low income earners and poor people get credits under current tax laws.

Consider two typical middle-income earners with equal incomes. If all other things are equal (i.e. family size, RSP contributions, age, etc.), these two tax payers will each pay the same (reduced) amount of income tax.

Overall taxes will rise for the middle-income earner who owns a couple of SUV's, a power boat, some ATV's and snowmobiles; who drives everywhere instead of walking when practical; and who fails to be efficient with home heating and cooling.

Overall taxes will go down for the middle-income earner who practices conservation and efficiency. This practice is often referred to by naysayers and Luddites as "freezing to death in the dark."

I've taken many measures to reduce my own carbon footprint. I've also taken a few online tests to estimate my output and have consistently found that Ma and I use about 60% of what the average Canajun uses. We don't freeze in the dark. CFB lighting, thermal underwear, walking when practical, multi-tasking whenever we use a motor vehicle, digging dandelions and never buying chemical pesticides, composting, keeping the hot water heater set to a reasonable temp, etc. etc.

Despite the fact that we already use only about 60% of the energy used by average Canadian, we live in an older (1880), detached, wood frame house that could use plenty of energy efficiency upgrades. We live in a small town with only one supermarket, one drug store, one gas station, one lumberyard, one hardware store and one set of traffic lights. Not everything we need is available locally but most of it is and much of our shopping can be done on foot.

But, dang it all, we can do a lot better. Our old shack could really use better doors and windows. Once we start paying less income tax and we can see we'll be better rewarded by increasing our energy efficiency through tax reduction (and possible government incentive programs), we'll be a lot more likely to spring for a few thousand bucks' worth of 21st century windows and doors. We're already shopping.

I expect that a revenue neutral tax-shift will reward people like me and punish people like my boat-owning, 3 vehicle-owning, frequent jet traveling, air conditioner-using neighbours. Without a tax-shift, the best way Ma and I can save tax money is to lower our incomes by purchasing more expensible stuff -- like new business vehicles, trips to professional conferences, socking away more in RSP's or actually taking a cut in pay. With a tax-shift, we can make more money, spend less and ultimately pay less tax simply by reducing our carbon footprint -- something almost everyone can do, even if we've already done a lot.

That's the whole concept of a carbon tax: to get people to quit wasting energy. If we were to simply offset all carbon taxes with equal income tax reductions, we would create little incentive. The fact that consumers can lower their tax bill while lowering their energy bill is what makes a carbon tax work.

JimBobby

12 comments:

bigcitylib said...

"I'm about 80% sure that the "If $1,000 in then $1,000" out formulation is from a speech Dion gave, or a clumn he wrote.

JimBobby said...

BCL, if that's what he's saying, I don't think he understands the concept of a carbon tax or a tax shift. If you can find a source for a quote, I'd be extremely interested. A carbon tax that exempts gasoline and delivers dollar-for-dollar neutrality is a recipe for failure in effective carbon reduction.

We simply need details and Dion's had plenty of time to assess the pre-emptive arguments against and ensure the plan addresses knee-jerk objections. Now, he needs to release details and start selling.

JB

Rosie said...

I'm concerned that the consumer price index is going to skyrocket so those already not paying a lot of taxes will be further in the poorhouse. We have to make alternatives more accessible and widespread before this carbon tax idea is even going to remotely work. I am a big fan of the carbon tax, but I just don't believe that we can trust oil companies and stock market dudes not to jack the prices for their own greedy purposes.. Lets make them obsolete first, then jack the taxes.

JimBobby said...

RosieGal, without a corresponding safety net for the poor, a carbon tax would devastate low income earners who pay little or no tax. The Green Party plan makes serious accommodation for these low income Canadians in the anti-poverty policies that go alongside the tax-shift policies.

Even under today's income tax and property tax rules, many people get "refunds" in excess of any taxes they actually paid. These sorts of tax credits will need to be increased as the income taxes are decreased to benefit all.

I used examples of middle income earners but we could use examples of poor people, too, and show how their bottom line is affected by the tax-shift.

Regardless of whether energy is taxed with a carbon tax or not, the cost of gas is going up and that's hitting poor people disproportionately already. The retooling of the tax system to accommodate those hard-hit Canadians while encouraging waste reduction is the goal of a well-planned tax shift.

When Dion finally gets around to divulging details, he should have a lot of examples of what it will mean for various categories of Canadians. i.e. What it means to the 905 family of 4 with 2 cars and a 45 minute commute; what it means to rural and small town retirees; single moms in the city; East Coasters, West Coasters, etc. He's got to have enough examples so that we can see what it will mean to family and individual bottomlines.

JB

ted said...

Regarding the "$1000" statement: I think the point is that if the AVERAGE person spends $1000 extra then the AVERAGE person can get $1000 in tax back. This is very different from saying that a particular person gets back what they pay on a carbon tax. As you would expect, the Liberal carbon tax will be structured to incent people to reduce fossil fuel consumption.

900 ft Jesus said...

"The retooling of the tax system to accommodate those hard-hit Canadians while encouraging waste reduction is the goal of a well-planned tax shift."

That's the key for sure, not only to selling the plan but to make it workable. I was talking to a buddy today about how people won't cut energy use to a degree that will make a difference globally unless they face personal reasons to do so, mainly economic reasons. That behaviour change then affects markets which affects production and R&D. We could have made more efficient cars years ago, and there were some around but they weren't popular. Not until gas prices forced many to move away from larger vehicles due to gas prices. So, people buy smaller cars, plants close down but new ones will come up producing alternate transportation vehicles...

It's too bad that we repeatedly have to hit crisis mode before making changes and that they changes aren't well planned but more a reaction to very bad situations, but that's the reality, and why, as much as I don't want to be hit with higher costs for fuel, that's what will force change.

As you say, though jimbobby, those who already can't afford it shouldn't be hit anywhere near as hard. Their situations will become even more desperate, and since they aren't the ones producing the most in emissions, taxing them won't help reduce greenhouse gases.

catherine said...

Here's a bit of information. It says

To that end, Liberals say Dion's plan is aimed at helping wean Canadians off fossil fuels as painlessly as possible. It will include a host of tax measures - from refundable tax credits to tax incentives and direct tax cuts - that will be skewed heavily in favour of lower- and middle-income Canadians.
...

Insiders say Dion and his inner circle have agonized over details, trying to ensure that no one is unfairly penalized by the carbon tax. Various measures have been built in to protect those who can't afford or can't access alternative energy sources, such as poor, elderly and rural Canadians, or those whose livelihoods are dependent on fossil fuels, such as truck drivers.


I don't think Garth Turner's comments in that article (every taxpayer being better off) is right unless you interpret this in some broad sense beyond economic considerations.

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