Fees, taxes, and revenue generation | What's Left

by Editors (What's Left) last modified 2017-04-24T19:49:11-04:00
There has been a recent uptick in discussions around the failure of the private sector to provide quality services. From airlines to infrastructure, from safe jobs to retirement, from the transition to a low-carbon environment to agrochemical companies poisoning the ground, from the cost of rent to the price of housing. People in the US are starting to realize that the private sector in a deregulated market is not able to stop greed from doing harm to many things we enjoy.

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Providing basic necessities of life is essential to stop a fall into barbarism, but for a growing section of the population capitalism does not seem to be delivering on its promises. Alternatives are being sought by many who would not normally have looked and socialists can give some solid answers. But, in advanced capitalist countries that have undergone decades of neoliberalism, one question remains: how do we structure and pay for these socialist advocated policies so they deliver on the promise of a better world?

Government spending is necessary. It is necessary in advanced capitalist economies, socialist economies, and even Ayn Rand inspired dystopian movie plots. The real debate is not whether the government should raise revenue, it is who pays, how much, and who benefits. Even the centre and right of the political spectrum obsess about how to raise revenue.

The response from many on the left has been to talk about increasing taxes, but while revenue is important, we are often silent on exactly how we collect those taxes and how we are spending that money.

The recent push around carbon taxes, marijuana regulation, road tolls, gas taxes, and electricity prices are actually all debates about how government should raise revenue. But, the public conversation on these programs tends to ignore the economic part and focus only on the social aspects that drive popular opinion. The media focus on whether Canadians support legalization, how high their bills are, and how tolls affect road rage. And, there is no conversation about alternative government revenue generation except to say that taxes are too high.

The problem is that most of those revenue schemes are highly regressive in nature. That is, the burden of paying into the government's budget falls mostly on workers and the poor. The only folks that seem to be talking about this are the bankers and investors who are looking to get rich in a new marketplace and understand that any regressive tax means they benefit in the long run.

In public discourse, these new regressive revenue tools are wrapped in the Veneer of Pigoivan. Liberal economists will say these are taxes to stop you from consuming too much of a certain thing by making it artificially more expensive than the market price. That artificial cost increase is just a flat tax, but it does have the effect. The poor cannot consume as much alcohol, corporations cannot burn as much oil, working people cannot drive as much as before, and families use their air conditioning units less.

Then, progressive liberal economists will tell you that you can structure a public budget to counter-act regressive taxes so in the end the budget is progressive. Their solution is to give some of this regressive revenue back to the people at the low end of the economic scale. Tools like non-refundable tax credits, deductions, fee subsidies, rebates, and spending targeted at the very poor. It is true that a government could theoretically do this, but if progressives had the power to make a regressive revenue stream progressive, they would also have the power to make revue generation progressive.

The reality is that we have increasingly regressive government revenue programs and regressive government spending regimes.

Additionally, if you are living month to month -- as most middle-income people do while they pay mortgage, education, and consumer debts -- waiting to the end of the year to see if you get a refund does not lift the burden of paying bills. It is the money in your pocket that you look to, not the promise of money later. Next time you hear liberal economists talk about tax refund, remember that it is more efficient for the government, the economy and the individual/family if they do not pay the tax/fee they cannot afford in the first place. When it comes to the basic needs of a functioning society, those who can pay should, but those who cannot should not.

Alternative methods

From a socialist's perspective, the government can be seen as a sort of democratic, non-profit bulk purchasing program. Similar to a cooperative or credit union, governments leverage their size to get a good deal for their members/citizens. A government's efficiency is seen from accessing lower cost debt than the private sector, to lower cost administration (for the same level of quality), to a fairer way of distributing bulk purchased products and services. When managed properly, government services can provide all the upside of a private sector monopoly with few of the downsides.

Of course, socialists do not manage government services in Canada and liberals (of many stripes) do not share the view that government should provide efficient, quality services. For liberals, it is not how efficient or supportive the government can be, but how cheap government can get for their rich friends. Current policies of cuts and downsizing are cynically balanced to stop just short of upsetting too many people for the same reason at the same time. The result is revenue generation decisions and spending decisions that do not seem to make much sense for most of us.

Take electricity as an example. Why is it that electricity is paid for via a fee in Canada when most of our electricity is publicly owned? Why are those on the political right -- who are so opposed to taxation -- in favour of marketized pricing for consumer electricity? The fees you pay for basic levels of electricity far out-weigh the fees paid for licence renewal, public sports registration, and health clinic access. But, for some reason, it has become normalized to pay these very heavy fees. It was not always the case.

Today, liberal governments generate rather large revenues on their ownership of electrical utilities. The net revenue is collected based on a flat rate, from everyone. This is the definition of a regressive tax.

It has been and could be provided differently. Basic electricity could be viewed as a right of all -- since a basic amount is needed to live in Canada -- and could be funded through a progressive tax system. It is more efficient to run a utility offering universal access through the tax system since everyone already pays taxes. It is vastly more efficient to do this than build a massive redundant bureaucracy to monitor, collect, refund, and subsidize electricity rate payers.

In fact, it used to be this way. It is only that capitalists did not want to pay their fair share of taxes and electricity costs. Tax cuts meant that governments could no longer afford to cover costs of electricity for everyone and so they implemented a fee structure. Governments eventually learned they could even subsidize their tax revenue through net revenue made at the utility by doing what corporations do to make profits: jack up the fees.

Other fees

The legalization of cannabis is similar to the collection of tax revenue from liquor sales at the public liquor control board. It is a flat tax, a regressive tax. It is not quite the same as the price of electricity since you do not actually need to drink, but there are limitations on the amount you can physically consume which means that the super rich are paying near the same level of this tax as workers. Which is regressive.

Under neoliberalism, all of these services operate as revenue generating services for government. These services have been corporatized, partially sold-off, restructured to limit pay and benefits for the workers, all while maximizing revenue generation for the government and their private sector partners. In essence, the transformation removes all of the benefits of public ownership and introduces all the downsides of private ownership.

In all these cases, the revenue generated has replaced what used to be collected in progressive income taxes with a highly regressive form of taxation.

There is another benefit for the private sector at the end of this transformation. Introducing and increasing fees paid by the consumer means that it is much easier to privatize the entire service and turn the government revenue fee into private profit. Which is the clearly stated end goal of neoliberal policy.

A real alternative

We need to remind ourselves and others that there are solutions to the problems of the world that can be implemented more efficiently than just making things more expensive. And, that there are ways to increase government revenue without resorting to regressive fee-based taxes.

Basic necessities can be provided as a right and on a non-profit basis. It is much easier to regulate something for quality when it is provided by an elected government than it is to regulate private monopoly (or oligopoly) companies.

In the end, even the answer to declining airline quality in North America can be found in this simple solution. The public nostalgia of flying in the past is a recollection of a time when most airlines were publicly owned and operated. It is monopoly capitalism that has ruined flying.

People were never kicked off a plane for overbooking when the airline was a publicly owned company.

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