Neil Brooks teaches tax law and policy at Osgoode Hall Law School in Toronto. He has tried to make a career out of one simple idea: that the rich and corporations ought to pay their fair share of tax. By and large, he says, his career has been an abysmal failure. Compass contributing editor Judy MacDonald interviewed Neil Brooks in late August. What follows is an edited transcript of that interview.
|Judy MacDonald:||Why is a nice guy like you specializing in such a hated thing as taxes?|
|Neil Brooks:||I went to university during the 1960s, and many of my friends were concerned with social policy issues. They wondered why there are so many poor people, and what it is about our social and economic system that makes a large number of people have to live in poverty. I thought an equally interesting question was, "Why are there so many rich people?" "What is it about our social and economic system that permits this enormous disparity in income and wealth?"|
The tax system, which supposedly is one of the instruments we use to achieve a more socially acceptable distribution of income or wealth, seemed to me to be an important policy instrument to be studying if your interest was a more just society.
|Judy MacDonald:||Do you think our taxes are being used inefficiently?|
|Neil Brooks:||We should be using our tax system to achieve two important goals: first, to finance goods and services that we want to provide to one another collectively, and second, to achieve a more socially acceptable distribution of income and wealth than that which results from so-called free market forces. In Canada, we're not using our tax system as a very effective instrument for redistributing income and wealth. Indeed, while the income tax tends to be progressive, the sales tax, property tax and payroll tax are all regressive. When you consider all our taxes together, everybody pays about the same percentage--around 35 to 40 per cent --of their income in taxes. So overall, our tax system isn't redistributive at all.|
|Judy MacDonald:||Where do you think the pressure to reduce taxes comes from?|
|Neil Brooks:||People over the last ten or fifteen years have generally not seen their real incomes increase at all--indeed, the average family income in 1995 in Canada in real terms is lower than it was in 1980. When people don't see their standard of living increasing over time, they naturally get cranky and look around for a scapegoat. It has been relatively easy for business interests to scapegoat the government. Business has been able to sell lower taxes as one way people will be able to increase their after-tax income, and therefore their standard of living.|
I think it's profoundly wrong. There's no question that people's standard of living will decline if we reduce taxes and reduce the collective goods that we provide for one another.
|Judy MacDonald:||Do you think there's any way that taxes can be portrayed as anything but negative in popular perception?|
|Neil Brooks:||It's really difficult to make the case for higher taxes because people tend not to make the connection between taxes and the goods and services that they in effect buy with their taxes. The real question is: can we deliver those services more efficiently and pay for them more equitably through the public sector or the private sector?|
All the evidence is that it is more equitable to deliver many services through the public sector, because they're services that we all benefit from. Even though we personally might not be receiving them, we benefit because others receive them. It is also clear that we can deliver most of those services more efficiently through the public sector. Health care is the most obvious example. The Americans, who deliver most of their health care through the private sector, consume more than 14 per cent of their Gross Domestic Product on it, and yet more than forty million Americans aren't covered by the system. In Canada, we spend only about 10 per cent of our GDP, and absolutely everyone is covered.
|Judy MacDonald:||When you say, "While we might not enjoy the services ourselves, we'll benefit by other people benefiting," what do you mean?|
|Neil Brooks:||As an example, let's take child care. Even though I might not have children, I clearly have an interest in other people receiving high-quality child care. We all benefit from children generally--and low-income children in particular--growing up to be better adjusted, more productive members of society. And if we don't provide child care through the public sector, then low-income people might be forced to put their children in their neighbour's home, where the children sit all day watching television. The societal costs of that for the rest of us are enormous, because these people will become less productive than they otherwise could have been, and will many times become involved in criminal activity. We'll simply end up spending more in the long run, on social assistance and the criminal justice system, when we should be paying up front in the form of higher-quality child care services.|
|Judy MacDonald:||You prefer a comprehensive tax system to allowing any kind of charitable status--including to religious organizations. Can you explain the philosophy behind this?|
|Neil Brooks:||It's absolutely essential that we have a very strong and vibrant civic society, which requires lots of strong and effective voluntary associations. The only question is, how do we promote that voluntary sector? Giving tax breaks to people who donate money to voluntary associations is a fairly irrational way of allocating money to the voluntary sector. It means that people with money are in effect able to determine where government money is spent by giving money to whatever voluntary association they want. It's an odd way of allocating government money, which effectively is what a deduction for charitable contributions is.|
|Judy MacDonald:||Would a fair tax system lead to capital flight?|
|Neil Brooks:||The evidence is that high taxes do not drive out new investments. Countless empirical studies have been done on this question, and the great majority of them find that taxes have very little influence on where people locate new investment. There are two intuitions underlying that result. One is that no matter what taxes you raise from these firms, it's likely to be a small part of their total variable geographical costs. Their labour, energy and transportation costs are going to be much higher than their tax cost. Therefore, taxes are not likely to be such an important consideration.|
Second, to the extent that you tax them more, then very likely you are also providing them with a higher quality of public services. They can depend, for example, on communication systems, which makes them more productive. Like everybody, businesses want to locate where there are livable cities, crime rates are low and education and health care systems are good.
|Judy MacDonald:||You don't think that it would be difficult for Canada to impose a tax structure that is significantly different from that of the U.S.?|
|Neil Brooks:||No, absolutely not, it wouldn't be difficult at all. And indeed, another piece of evidence that indicates that taxes don't matter and that individual countries still have a good deal of control over their tax system is that in the United States, taxes have varied between states, where there is almost complete mobility of resources. California, which has many high-tech firms and some of the most productive industries in the United States, has always been a very high-tax jurisdiction and has aggressively collected its fair share of taxes from multinational corporations.|
|Judy MacDonald:||You've been quoted saying that every $1 billion in spending cuts destroys three to four times the number of jobs created by a $1 billion tax cut. Could you explain this?|
|Neil Brooks:||In justifying its tax cuts, the Ontario government said it had to cut taxes to create jobs. That makes absolutely no sense. Again, the intuition is clear: when the government spends $1 billion, lots of it goes directly into labour costs: into hiring people to deliver goods and services. Lots of it goes to lower-income people, who spend virtually all their income. If you provide people with a tax cut, inevitably some of that money will be saved and not spent on goods and services; much of it will be spent out of the country; much of it will be spent on imported goods and services. So it seems to me that tax cuts cannot be justified on the grounds that they're necessary to create employment.|
The Organization for Economic Cooperation and Development did a massive study on the effect of taxes on unemployment. They found that some countries with low unemployment rates have high tax rates and some have low tax rates; some countries with high unemployment rates have very low tax rates and some have very high tax rates. There's just no correlation between tax rates and employment levels.
|Judy MacDonald:||If antitax fervor is fully acted on, what is the worst scenario?|
|Neil Brooks:||Taxes allow you to build a cohesive community that embraces all members of your society. If you reduce your taxes, you provide fewer collective goods, and the tax system becomes an even less effective system than it is now for the distribution of wealth and income. You are left to rely more and more on the private sector for the provision of goods that ultimately everyone benefits from.|
The country will be fragmented into a whole series of communities, largely based on wealth. There will be very little interaction between the communities, and I think that the effect of it will be to enormously impoverish everybody's life. You end up with guarded communities--rich folks living in their own guarded communities where they provide themselves with the goods and services they want and thousands of other people living in ghetto areas where they virtually have no resources at all.
|Judy MacDonald:||And some living in prisons. One form of guarded community and another form of guarded community.|
|Neil Brooks:||Yes, some living in guarded communities in homes and others in prisons. You're absolutely right.|
|Judy MacDonald:||Benjamin Franklin said, "In this world, nothing can be said to be certain, except death and taxes." Can we talk about life and taxes--about the positive things a just tax structure does?|
|Neil Brooks:||The way we ought to think about taxes is not that they are a burden on people. They are clearly no more of a burden than prices are. And not that they restrict people's freedom, because services that we buy with the taxes we pay enormously increase our freedom--freedom from crippling health bills, from illiteracy, all those things. And furthermore, taxes enormously increase the personal choices we have. One of the more vicious propaganda slogans that the Ontario Conservative government has used in justifying tax cuts is that they want to increase people's choices over the goods and services that they buy. It reflects an utterly impoverished view of human nature: that people want to make choices only about the private goods and services they purchase--this Nintendo game or that Nintendo game, this fashion accessory or that fashion accessory.|
In fact, people also have preferences and want to make choices about the kind of society that they live in, and these are the most important choices they make, and the only way that we can express those choices is through collective action and by paying taxes. The way we ought to think about taxes is that they serve human purposes, and those purposes in many cases reflect our best aspirations and our most valued goods and services that we provide for one another collectively through government.
© 1997 Compass, A Jesuit Journal and Gail van Varseveld