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Thursday, May 27, 2004

Taxing Inconsistency

When Harper announced his plans for tax cuts, pundits were jumping to cast doubts on the economic basis of his plan. The argument was basically that he was too optimistic about the revenue stream to maintain his spending promises.

But now Jack Layton is out with a plan to increase taxes, with the objective of increasing revenue by $29 billion. So where are the economists now? I'm halfway through my economics degree, and I can already tell that increasing taxes by $29 billion isn't exactly an incentive for economic growth (and developing a tax base!).

And that's assuming that everyone sits tight and actually let the NDP stick their hands in our pockets!

But then, nobody seemed to mention the boost to economic growth that the Conservative plan would provide anyways. Supply siders and Keynesians would both agree that lower taxes increase GDP: when nobody in the press mentions that, I wonder what economics school they come from.

Pundits were after Harper within probably hours; I'm still waiting for them to say something about Layton. In most cases, nobody would waste any breath on the NDP anyways, but with a possible Liberal minority, someone should be watching what their likely coalition partner is saying these days.

Posted by Kelvin on May 27, 2004 in Canadian Politics | Permalink


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Kelvin, while I share your dismay, I'd like to take issue with just one thing you said:

"Supply siders and Keynesians would both agree that lower taxes increase GDP:  when nobody in the press mentions that, I wonder what economics school they come from."

The answer, of course, is 'no such school.'    My greatest criticism of most journo types is that they have no formal economics training and even less statistical training (if that's even possible, which, after seeing some journos pontificate, convinces me that it *is* possible).    Journalists generally attend *journalism* schools (or namesake programs in universities), which aren't exactly hotbeds of general liberal education, much less formal instruction in economics or stats.    For most interpretation, they seem to rely (in dismaying numbers) on press releases from various special interest mouthpieces, who are more than happy to supply the necessary 'interpretation.'    After all, wouldn't wanna burden the poor babies with actually having to think about the information coming across their desks.    They've got deadlines!    They don't have time to *interpret* as well!

**SIGH**    Sorry.    Been on the pointy end of too many journos who can't, or won't, think for themselves...

Posted by: Garth Wood | 2004-05-27 4:11:24 PM

I suppose my entire post was an oblique reference to such, but yah, I doubt there's that many people in the press that has any economics knowledge, period. They can pronounce terms like GDP, bank rate, and trade surplus, but ask them what they mean and a lot of eyes would probably just glaze over.

Posted by: Kelvin Chan | 2004-05-27 6:17:32 PM

Arthur Laffer is an American economist who suggested that there was an "optimal" tax rate, at which a government would maximize it's revenues (assuming that is the objective).

The idea is essentially that tax base times tax rate equals total tax revenues: as the tax rate increases, the base decreases. Laffer suggested that increasing the tax rate beyond the "optimal rate" will cause a proportionally greater decrease in the tax base such that total tax revenues will decline. Conversely, when the tax rate is already above the optimal rate, decreasing the rate would increase total revenues. More here: http://en.wikipedia.org/wiki/Laffer_curve

The other day Andrew Coyne recently wrote about what might be recent example of this in Ontario (under "Policy Wonkinsh Note"): http://andrewcoyne.com/archives/003647.php

Posted by: Tim | 2004-05-29 6:23:45 PM

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