Sunday, April 1, 2012

CBC Posts a Funny April Fool's Joke: Flat Tax

Ha ha ha, good one CBC:

5 benefits of a flat-tax system, and why it still isn't likely in Canada

Graduated income tiers a disincentive to work, economist says

 I know you're laughing already, but wait, there's more:
For Niels Veldhuis, senior economist with the Fraser Institute, the argument for changing the tax system isn't about burdens but about productivity. He says a flat tax would increase the incentive for Canadians to work, earn more money and, in turn, invest that money back into the economy.
The current system of graduated rates takes a larger percentage of a person’s income the more money they make, and this is a disincentive for hard work, he says.
“You’re sending a signal to young, aggressive Canadians who want to take risks, who want to start businesses, who want to save and invest. And what you’re telling them is the more successful you become, the more and more we’re going to penalize you,” Veldhuis says.
See, Canada is chalk full of little John Galts, sitting idly in their own private Galt Gulches just waiting to unleash their productivity if only the big mean old government would stop punishing them for success (because Taxes aren't actually how we pay for civilization, no, they are actually a criminal penalty!) 

Now some silly people on the left will tell you that eliminating progressive taxation will starve government of revenue needed to maintain vital programs and services, but no, Mr. Fraser Economist will set you straight:
Unleashing that entrepreneurial spirit, so the argument goes, will create more investment, jobs and opportunities which will, in turn, increase government tax revenues.
See, cutting taxes will raise revenues!  Just like it did...well, Mr. Fraser doesn't say anywhere this has actually worked out, but the theory was proposed by a guy named Laffer so we know it's a great idea. 

Now I know we all want to rush out and tell our MPs to implement this fantastic idea on Canada, but we really should be prudent and check some references, just to cover our bases.  Tell us, where has this fantastic idea been tried?  It must be sweeping the world, because it all sounds so great!
A number of countries, including Russia, Czech Republic and Slovakia, have instituted single-rate systems over the past decade or so. 
I also hear that Ogdenville, North Haverbrook and Brockway love their new monorails.

For some actual worthwhile discussion on the radical flat tax experiments underway in various former Communist eastern eurpoean nations, see here, and here and here.  Quote from the last one:
The positive effects of the flat tax are at least ambiguous. There are no Laffer curve signals, a correlation proved between the fiscal relaxation through the flat tax and the increase in the budgetary revenues (Keen et al, 2006). Moreover, the budgetary revenues do not automatically get increased as a result of this measure. For example, in the case of Estonia, even under the terms of a high rate of economic growth, the share of the returns
from the direct taxes got decreased from 12% (in 1994) to 7.5% in 2008.
Also, in the case of Slovakia, there have been made estimates that the revenues from the income
taxes and from the taxes on profit were up to 1% lower than under the terms of not introducing the tax reform (Odor, 2007).
You'll also learn that Flat Tax countries also find it necessary to institute hefty 20% VAT (sales taxes) and keep substantial payroll taxes to fund their minimal social safety nets.


  1. Unleashing that entrepreneurial spirit

    I see the Canadian right wants is anxious to replicate the criminals at Wall Street. these guys have big aspirations...

  2. Thank goodness I just put down my tea before I read this otherwise I would have spat it out from laughing so hard. Indeed any proposition for a change in the tax system is not going to benefit the little people, it is for those at the top or more importantly those in the government so they can have an increased revenue, they will get the money one way or an other, cut here add there. Trust me none of them would take pay cuts in order to reduce taxes, so I try to feed my family on what I can, earning less in a year than many make in a month. Hmm. Happy April Fools Day!
    Great blog!