progressive tax reform: tax options for raising new revenues · progressive tax reform: tax options...

Progressive Tax Reform: Tax Options for Raising New Revenues

Seth Klein December 2013

www.policyalternatives.ca

Thursday, December 12, 2013

http://www.policyalternatives.ca

http://www.policyalternatives.ca

Overview

Why BC needs tax reform

Changing the public conversation

Options for raising new revenues

Where do we go from here?


The context

• Two great inconvenient truths of our time:- climate change

- growing inequality

• We need additional revenues, but....

A decade+ of tax cuts = provincial tax revenues as share of GDP 1.6%

= $3.5 billion/year foregone revenues


Provincial income tax revenue as a % of GDP

If BC taxes were = to the Canadian average, we’d have $2.4 billion more


The changing mix of BC’s taxation system: revenues by source

Source: Iglika Ivanova’s calculations based on BC Ministry of Finance documents.


0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

Poorest 10% Decile 2 D3 D4 D5 D6 D7 D8 D9 P90-95 P95-99 Top 1%

BC total tax rate by income group, 2010


Fundamental shifts within BC’s revenues

corporations households

upper-income households middle & modest-income households

progressive income taxes regressive consumption taxes, MSP premiums, & user fees

FROM... TO...


So what’s the solution?

• What taxes should be increased?

• How can we raise revenues in a fair and progressive manner?

• How do we talk about this with British Columbians when so many are struggling with affordability challenges?


Changing the public conversation about taxes


Only 10% say there should be no tax increase at all at any level

If personal income taxes were raised on some individuals in BC so the revenue could be used to reduce income inequality, protect the environment and improve access to public services,

at what income level should people start paying more taxes?

All income levels 5%

$55,000 per year 9%

$70k 19%

$85k 32%

$100k 57%

$150k 75%

$200k 84%

$250k 90%

cum

ulat

ive

% o

f res

pond

ents


What about major corporations?

67% of respondents say they are asked to pay less tax than they should

44% say they pay much less than they should

60% of Liberal voters say less than they should

64% of Conservatives voters say less than they should


When you think of all the taxes you pay, do you feel that...

You pay much more or a bit more tax than you should

71%

You pay about the right amount in taxes

27%

You pay a bit less or much less tax than you should

3%


Provide more access to home and community based health care services for seniors

69%

Eliminate Medical Service Plan premiums 61%

Protect BC’s forests and endangered species 58%

Increase welfare rates to ensure the poorest British Columbians can meet basic food and shelter needs

53%

Reduce class sizes in K-12 education 52%

Invest in an affordable housing strategy 51%

Make public transit more accessible and convenient 51%

Reduce the provincial debt 48%

Reduce tuition fees for post secondary education by 50% 47%

Create a $10/day child care program 47%

Fund home and building retrofits to reduce BC's greenhouse gas emissions

44%

% w

illing

to p

ay a

hig

her

shar

e of

ow

n in

com

e


0 1-3 4-7 8-10 11

19%18%

31%

21%

12%

68% are willing to pay more tax for 4 or more policies

37% for 8 or more policies

1 in 5 for all 11

% o

f res

pond

ents

more willing to payless willing to pay


0

11

Green NDP Liberal Conservative

6.86.5

5.4 5.5

mor

e w

illing

to p

ayle

ss w

illing

to p

ayAverage willingness to pay by voting intention


Mistrust + lack of knowledge = TOXIC

Government = politicians = self-interested/incompetent/corrupt

Extent to which people over-estimate waste/inefficiency

The black hole of government revenues

There’s no set place it [sales tax] is being spent. For all we know, it’s going to pay politicians’ salaries. There’s no transparency about how it’s being spent.

- 30-ish man in Vancouver


Taxes and budgets

when we do the budget exercise

me

govt

taxesservices

not necessarily linked in people’s minds

me

govt

taxes

(ie, black hole, never to be seen again)


responsibilitypitching in

we all/most of us need to pitch in a little more

the cost of a cup of coffee per day?

fairnesspaying a fair share

the top [10%? 20%?] need to pay pay a little more, major corporations too

they can afford to pitch in more

reduce the income gap

transparencywilling to pay if know where $ goes

link calls for tax increases to specific outcomes

avoid public services are a good deal for what you pay (value for money frame triggers govt is wasteful/inefficient)

quality of lifefor all generations

appetite for seniors care linked to needs of younger generations for education, child care,

affordable housing

taxes are the price we pay for a high quality of life in Canada (triggers thinking beyond my own personal

needs)

participation


Options for raising revenues


Bracket! Taxable income range

(2012 dollars) ! Jan 2001! Jan 2012!1! $1 to $37,013! 8.40%! 5.06%!

2! $37,013 to $74,028! 11.90%! 7.70%!

3! $74,028 to $84,993! 16.70%! 10.50%!

4! $84,993 to $103,205! 18.70%! 12.29%!5! Over $103,205! 19.70%! 14.70%!

Top marginal tax rate

"#$%&'()*!+)*),-.!/!0,$1'(#'-.2! 48.70%! 43.70%!

% of BC Tax-filers

~ 59%

~ 27%

~ 4%

~ 4.5%

~ 5.5%

4th lowest in Canada

OPTION A: Increase personal income taxes


Scenario #1

income tax change raises could fund

Increase existing top bracket

from 14.7% to 17%

(only top 5.5% of BC tax-filers affected)

$375 millionincrease in

welfare rates of $200 to $400/month


Scenario #2


New tax bracket:Income over $150k

taxed at 18%

(only top 2% of tax-filers affected)

$400 million2,000 units of social housing

per year


Scenario #3


2 new brackets @

$150k of income (18% tax rate)

$200k of income (21% tax rate)

This bracket would only affect top 1%

$700 million

2,000 social housing units/yr

PLUS

$300 million to restore class sizes, composition and

specialist teachers to level 5 years ago


Scenario #4


Increase 5th bracket to 17%

&2 new brackets @$150k (20%) and

$200K (22%)

(top 5.5% of tax-filers affected)

$930 million

2,000 social housing units/yr

&restore class sizes, composition and

specialist teachers to level 5 years ago

&10% more funding to post-secondary ed


Scenario #5


2 new tax brackets&

increases to the existing top 3

brackets of 2% of income

(only top 14% of tax-filers affected)

1.1 billion

Could now also fund the first phase of implementing a comprehensive

publicly-funded child care plan


Scenario #6

20% increase to all tax brackets plus two new upper-income brackets

Raises ~$2.3 billionCould fund social housing;

welfare increases; restore class sizes, composition and specialist teachers to where

they were 5 years ago; 1st phase of child care plan;

and needed investments in community health care; and MCFD increases; and post-secondary increases;and substantial increase to environmental protection


OPTION B: Increase & fix the carbon tax

• Increase the carbon tax- Currently $30/tonne

- Continue annual increases of $5/tonne

- In 4 years (reaching $50/tonne) would raise $2.2 billion

• Fix the carbon tax- Half ($1.1 billion) could be directed towards an expanded credit.

Bottom 50% of households would be net beneficiaries.

- Half directed towards climate action (building retrofits and public transit)


OTHER OPTIONS

• Close loopholes and reduce deductions (personal and corporate)- RRSP deduction costs BC

$459 million

- 50% exclusion of capital gains costs $3.6 billion federally

• Reform the home-owners grant - costs BC $780 million

• Increase corporate taxes, currently the lowest in the country (each 1% increase raises ~$200 million)

• Increase resource royalties

• Luxury taxes

• Vehicle taxes

• Regulating and taxing cannabis


Where do we go from here?

• We need to talk up the need for fair tax increases - The public will is there & and the options are many

- Tell our political leaders we support tax increases linked to new and improved services

• BC needs a major public consultation (a deliberative engagement process) to talk about: - What we want to pay for together; and

- How we want to raise the money to do so.


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