Debts and deficits lead to higher taxes as night follows day

Jeffrey Simpson is one of those typical right-wing columnists who ensures The Globe and Mail’s firm commitment to the I’m-all-right-Jack philosophy that pervades Canada’s corporate media. Nevertheless, he is sometimes capable of refreshingly honest and atypical commentary. Here he talks about the inevitability of higher taxes that must follow a period of high debt. What is irritating – yet so predictable – is the lack of responsibility that he and his fellow corporate columnists take for the “twilight zone of veracity” that he decries below. Why can’t politicians talk about raising taxes? What has happened to our “political culture” that makes paying for our expenditures (or exhorbinantly high interest rates, like in the 1980’s) so poisonous? Given the concerted campaign from the CD Howe and Fraser Institutes (among others) for lower taxes, and the willing championing of this cause by the media arms of Hollinger, Canwest, Bell, etc, isn’t the corporate media part of this problem? If one is skeptical, compare the number of articles in any given month that discuss the benefit of taxes with those articles that assume we must lower taxes. Anyone who consumes a lot of the corporate media in North America already knows the result. In any case, no answers are given by Simpson. All we see is his acknowledgement of the problem. And I guess that’s better than nothing.


Debts and deficits lead to higher taxes as night follows day

By Jeffrey Simpson

April 24, 2009

Lesson one for Liberal Leader Michael Ignatieff: Don’t answer hypothetical questions in a sound-bite era. Lesson two: Don’t even hint at the truth.

Last week, in answer to a question about what he might do if the federal deficit reached $80-billion, Mr. Ignatieff said he couldn’t take any policy options “off the table,” including raising taxes. Boom, the media pack went into action, and the Conservative yapping brigade hit him for espousing higher taxes. Such is political life.

Mr. Ignatieff did not call for higher taxes; indeed, he stressed that “no one in their right mind wants to shut off the recovery by raising taxes in any capacity.” But in ruminating about the hypothetical, Mr. Ignatieff danced around a certain truth: Taxes will eventually go up to pay for the deficit and increasing debt brought on by the recession and government responses to it.

The Harper government has forecast $64-billion deficits in the next two years. Forget about it. They will be higher, because the economic circumstances are gloomier than anticipated. The Western world is awash in debt, led by the United States, whose projected deficits are astronomical, whose financial-sector debts are gigantic, whose personal indebtedness is enormous but whose political culture still refuses to acknowledge that, at some point, the piper must be paid.

As long as the United States refuses to face this fact, it will struggle to recapitalize itself. And as long as that recapitalization is delayed, the country’s long-term economic future will be cloudy and the relative decline in which it now finds itself will continue.

High debts and ongoing deficits lead to higher taxes as night follows day. Canadians should know this truth. That was the Canadian experience once federal deficits began in the mid-1970s. The Mulroney Conservatives and, in their early years, the Chrétien Liberals raised taxes (and cut services) because there was no other realistic way to fight the Siamese twins of ongoing deficits and higher debts.

There was plenty of nonsense in those years about solving the problem with industrial strategies, pro-growth measures, eliminating “waste” in government spending, laying off civil servants. Everyone who wanted to avoid hard truths had a formula, just as so many do today. Eventually, the truth hit home, as it will after this recession. That Canada is heading toward more debt will merely increase the subsequent tax load. But, of course, politicians live in the twilight zone of veracity, suspended between what they know privately to be right and what their instincts and handlers tell them the political culture will allow.

So neither Mr. Ignatieff nor Prime Minister Stephen Harper will tell the whole truth about what lies ahead, in part because the truth will play itself out long after the next election. And since the country’s economic literacy is so low, there is no point allowing your political opponent to embark on a scare campaign.

Deficits are dangerous for liberals, but especially hard for conservatives, to talk about sensibly. A mantra of conservative parties is that deficits are bad, but the way they govern invariably produces deficits, or at least weakens the fiscal position of the government.

This observation is heretical to conservatives and counterintuitive to others, but the evidence in Canada and the United States bears it out.

In opposition, then in office, conservatives promise lower taxes, and try to deliver them, as the Harper Conservatives did with their two-point cut to the GST that cost the treasury about $12-billion.

Having eroded the government’s fiscal capacity, conservatives then promise to eliminate “wasteful” spending. When that effort produces meagre results, as it always does, the government either cuts programs (but never enough to make up for the tax reductions) or lets spending proceed apace, as the Harper crowd has done.

Twenty years of Republican administrations under three presidents followed this formula: a political campaign based on lower taxes and an attack on “wasteful” spending, followed by lower taxes but higher spending, with resulting chronic deficits.

Deficits of the kind conservative parties left in Saskatchewan, Ontario and Ottawa (Alberta was the exception because of energy royalties) also suggest that deficits and conservatives go together, rhetoric notwithstanding.

Posted by Colin Welch at 12:43 PM
Edited on: Saturday, April 25, 2009 1:27 PM
Categories: American Politics, Canadian Politics, The Economy, The Good, The Bad, and the Stupid, The Media


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