Saturday, November 24, 2007

I'm not laffering

The laffer curve is the concept that at a certain point you can increase your revenue by reducing taxes by increasing economic growth. Historically its been used by conservatives to justify cutting taxes for the rich, and historically they have been wrong. Now the Harper Government seems to be getting into the game. From the globe and mail:

Finance Minister Jim Flaherty raised the prospect yesterday of cutting income taxes for high-paid workers to keep them in Canada.

The man who has often been described as the populist Finance Minister suggested that it would not be an easy thing for politicians to do. But he said banks and other companies are being lobbied by foreign governments to move chunks of their operations to jurisdictions with better income-tax rates.

"We need to do more on the personal income-tax side because we still have marginal rates that are disproportionately high when I look at our competition," Mr. Flaherty told reporters in Oshawa. "And one of the things that politically is more difficult to do but it still needs to be done and that is in the higher earning categories between $100,000 and $200,000 a year in income."

The comments came as Ottawa revealed that it appears to be on track for record tax revenue this year. It estimated yesterday that the budget surplus for the first six months of fiscal 2007-2008 is $9.3-billion, up $3.4-billion from the same period a year earlier.

The government has previously said it would use unanticipated surpluses to speed up debt and personal income-tax reductions. It announced that it would cut the rate for the lowest income bracket to 15 per cent from 15.5 per cent.

The Canadian Bankers Association seemed to welcome Mr. Flaherty's remarks yesterday, saying in a statement to The Globe and Mail that "all governments in Canada have to create a tax system, including corporate and personal, that is as competitive with, if not more competitive than, other countries to attract and retain businesses and employees."

Don Drummond, chief economist of Toronto-Dominion Bank, joked that he "would never want to dissuade anyone from providing tax relief to bankers. That is a great idea that should be supported by all Canadians."

But, he said, "if it's marginal personal income tax rates one is concerned about, the gaze should fall at lower income levels. There we truly have impaired the incentives to work, save and invest, because once various benefits are clawed back, individuals and particularly families keep very little from that last dollar earned."

William Robson, president of the C. D. Howe Institute, believes tax cuts at the top end of the income scale are a good thing. "We are a high-tax jurisdiction for the people in the $150,000 range," he said.

--My thoughts are that people making around $150,000 per year have a pretty high standard of living and would be unlikely to get up and move for a little bit of a tax break.

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