The politics of tax cuts

Posted on January 20, 2009 in Debates, Governance Debates – Opinion/editorial – The politics of tax cuts
January 20, 2009

The Liberals did the right thing last weekend in coming out against across-the-board tax cuts in the upcoming federal budget. The evidence is that there is more stimulus from spending hikes than from tax cuts because taxpayers are wont to funnel the latter into savings.

Also, across-the-board tax cuts would hamstring future governments and force reductions in government spending down the road when the country emerges from this recession.

That, of course, is precisely why the governing Conservatives default to tax cuts at every opportunity, because they believe in a dramatically downsized government.

The current economic crisis is just such an opportunity, and Prime Minister Stephen Harper signalled last week that he plans to take advantage of it by putting middle-income tax cuts in the budget. “The middle class has to share in the stimulus program,” he said.

At the press conference following his meeting with the premiers, Harper also suggested, repeatedly, that Liberal Leader Michael Ignatieff is in agreement with him on the tax cuts.

Harper is apparently relying on a statement Ignatieff made 12 days ago in Halifax, where he said he favoured “tax cuts targeted at medium, low-income Canadians to boost their purchasing power fast.”

But Ignatieff went on to say: “The difficulty with tax cuts is they’re permanent. You can’t claw them back. And I think there’s a strong case for tax relief for the more vulnerable sections of the employed population of our country.”

Harper can play “gotcha” politics with this seemingly contradictory statement and put a big middle-class tax cut in the budget. That would run the risk of the defeat of the budget, which, in turn, would plunge the country into another political crisis.

Or Harper could heed the more definitive statements over the weekend from Ignatieff and other Liberals against tax cuts (except for the “vulnerable”) and avoid a crisis.

The choice is the Prime Minister’s.

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