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Confined to cuts

Drummond Commission's mandate did not permit tax increases.

Dateline: Monday, February 13, 2012

Thousands of Ontarians will likely sleep fitfully tonight, knowing their fate is in the hands of Don Drummond. Others will sleep like babies, knowing the powerful ex-banker can do them no harm.

Drummond's long-awaited report, unveiled February 15 at Queen's Park, lays out a deficit-shrinking program of austerity that is expected to have harsh implications for public employees – from hospital cleaners to day care workers – as well as delivering service cuts with devastating impacts on the poor, the sick, women in shelters and the disabled.

But if Don Drummond looms large in the nightmares of some of Ontario's most vulnerable citizens, he presents a friendly banker's face to the affluent, who are to be spared paying any additional taxes as their contribution to the province's deficit fight.

  One poll found that while Ontarians generally oppose higher taxes, 90 percent favour higher taxes on those with incomes above $500,000.

Premier Dalton McGuinty made that clear when he declared tax increases off the table in Drummond's search for ways to reduce Ontario's $16 billion deficit.

This puts McGuinty in lockstep with Stephen Harper's Conservatives, who militantly rule out tax increases (even as they insist that lack of revenue will force them to cut back old age pensions), and also with the far-right Republicans south of the border.

Indeed, wealthy interests have so taken control of the public debate on taxes in recent years that they've managed to completely remove, as an option, the kind of progressive taxation that was the norm throughout the most prosperous decades of recent North American history (1940-1980), often referred to as the "Golden Age of Capitalism".

The gutting of our progressive tax system has had huge implications for Canada, leading to ever deeper cuts to government programs that are particularly vital to ordinary Canadians.

It's also a key part of the story of rising inequality. A recent OECD report noted that, up until the mid 1990s, Canada's tax-benefit system was able to offset more than 70 percent of the rise in income inequality in the marketplace. Today, that redistributive effect has been reduced to less than 40 percent.

Of course, the rich argue that taxing them more would destroy economic growth – an argument they put forward forcefully, but with scant evidence.

In a study published last fall in the Journal of Economic Perspectives, Nobel Prize-winning economist Peter Diamond of MIT and Emmanuel Saez of University of California (Berkeley) concluded that the optimal top marginal tax rate would be 70 percent, since it would collect the most revenue without reducing work incentives or increasing tax evasion. (The top marginal rate in Ontario today is 46 percent – compared to 70 percent and higher during the Golden Age of Capitalism.)

Conventional wisdom has it that Canadians – like Americans – simply won't tolerate higher taxes.

In fact, polls tell a more nuanced story. US polls show resistance to taxes in general, but strong support for taxing the rich. Similarly, an Angus Reid poll commissioned by CUPE found that while Ontarians generally oppose higher taxes, 90 percent favour higher taxes on those with incomes above $500,000.

Perhaps it isn't surprising that ordinary citizens favour taxing the rich. But what is surprising is how this utterly predictable and understandable desire on the part of the masses has simply been removed as an option.

This is a stunning comment, not just on the limits of strategies for deficit reduction, but on the extent to which the wealthy have been able to set the terms of the debate, limiting our democracy.

They've also managed to push corporate tax rates sharply downward, with Ontario's rate scheduled to fall to 10 percent. Raising it back to the 2001 rate of 14 percent – as the NDP urge – would save the province $2 billion.

In an attempt to finally begin some pushback, a group of progressives and labour activists have created an organization called Canadians for Tax Fairness, which will hold its founding convention in Ottawa next month.

In the meantime, Don Drummond, former chief economist of the Toronto Dominion Bank, will advise the provincial government which public services must go, even as the option of taxing the rich – apparently favoured overwhelmingly by ordinary citizens – has been quietly ruled out of bounds.


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