July 2000 Fraser Forum: The Case of the Missing Tax Revolt
Each year The Fraser Institute announces Tax Freedom Day and each year I ask myself, "Why the heck isn't there a tax revolt in Canada?" Is taking half the average family income in taxes just not enough to cause a rebellion? Are Canadians just too "nice" culturally to protest this outrage? Are so many Canadians' receiving more in benefits than they're paying in taxes that the public just doesn't care? Such reasons would help to explain the missing tax revolt. But, just as with Sherlock Holmes' famous clue, somewhere there's a dog not barking. This year, after reading up on some history, I've found another reason, and it deals with current misunderstandings about social inequality.
First I should explain why I suspect that a quiet pooch - another reason - exists. Simply put, the standard reasons for why there has been no tax rebellion leave too many loose ends.
The loosest end is offered sotto voce by the various governments in Canada: the current tax level is not that heavy, certainly not enough to compel people into the street. (Of course politicians say taxes are too high, but except for the virtuous few - Ralph Klein, take a bow - they do little substantive about them.) US Supreme Court Justice Oliver Wendell Holmes once wrote, "Taxes are what we pay for a civilized society." Not surprisingly, the Internal Revenue Service engraved his words above the entrance to their Washington, DC, temple. By Holmes' logic (and not counting the communist countries), Canada should be one of the most civilized societies in recorded history. Canadians today pay a higher tax level than did post-First-World-War Germans, burdened with war debts, social unrest, and reparations, according to the figures provided by Niall Ferguson in his 1998 book, The Pity of War: Explaining World War I. Just about every tax revolt in history protested tax levels lower than Canada's in 2000. Kings John, George III and Louis XVI look like New Zealand's ex-prime minister Sir Roger Douglas next to Jean Chretien.
So then, do modern Canadians just lack the jelly of a Roman mob, colonial Boston's tea drinkers, or the Girondists? Having failed to protest taxes in 1776, are Canadians just doomed by culture to tug their forelocks before Canada Customs and Revenue Agency's bespectacled accountants? Canadian history reveals lots of yokes cast off and yolks thrown, from the Upper Canada Revolt to the Winnipeg General Strike. Most recently the Canadian sans culottes rejected the Charlottetown Accord in the 1992 Referendum. Deferential Canadians, probably always a bit of a myth, no longer prowl our land. Joe, the ranting beer salesman, does not say "Sorry" when you step on his foot. And he no longer says "thank you" when Ottawa steps on his pay cheque.
Still, Joe isn't yet shoving his fist into the blue Canadian sky for lower taxes. Polls show that many Canadians do want lower taxes. Yet support for parties promising significant tax cuts is currently half of what it is for parties who resist tax reduction. "Why, Joe, why?"
Michael Walker in the National Post gave an insightful answer. Using the Institute's tax research, he found that in 1990, 57 percent of the adult population received more money in benefits than they paid in taxes. Thus, a majority of Canadians have an interest in not lowering taxes. They approve of tax-and-spend government not because they think governments can do a great job with their money, but it does an okay job with somebody else's money - giving it to them. Pollster Conrad Winn took issue with this view by arguing that tax rage exists, it's just silent. But Winn's rationale, a dominant ethos of "political correctness," just re-hashes the deferential Canadian myth.
Yet something keeps nagging me about Michael Walker's point. Canadians may act out of their own self interest, but they don't believe they do. Casual empiricism it may be, but just about every Canadian I've met thinks he or she pays more in taxes than they receive back in benefits. Civil servants in Ottawa tell me this, for heaven's sake. (Russian novelist, Fyodor Dostoyevsky, put it succinctly: "the best definition of man is the ungrateful biped.") If net tax-getters think they pay out more than they get back, then why don't they support tax cuts, at least to the level of equilibrium between benefits and taxes paid? The answer may lie in the myth that highly progressive taxation upholds social equality.
Looking at the history of tax revolts, a recurring theme emerges. Tax revolts tend to arise less over the level of taxation, than the social inequality of taxes. Saxon lords who forced King John to sign the Magna Carta in 1215 were just as upset over the tax exemptions enjoyed by Norman landholders as they were by how much tax they paid. That the aristocracy and the clergy paid no taxes drove the taxpaying bourgeoisie into supporting the French Revolution. In colonial America, the tea tax fuelled resistance in part because it applied only to Americans, not to other British subjects. The American middle-class tax revolt in the 1980s arose because inflation drove upper-middle-class families into the tax brackets of the rich, while the rich indulged in the tax breaks supplied by a client Congress, making, in the words of Michael A. Barone, "a mockery of fairness." The French finance minister Colbert once observed that "the art of taxation lies in so plucking the goose as to elicit the least amount of hissing." Such art, it seems, lies less in plucking less than in being seen to pluck equally all parts of the bird.
Thus the missing clue to the non- existent tax revolt may be that the public, Joe included, believes that the tax system treats everybody equally which, of course, it doesn't. Taxes in Canada are exceptionally progressive. Perceptual equality in Canadian taxation rests upon the reality of its inequality. The 1999 book Tax Facts 11 shows that the system weighs predominantly on the 30 percent of Canadian families who earn more than $60,000. They earn 57.4 percent of all income and pay 64 percent of all taxes. The 30 percent of Canadian families with the lowest incomes earn 9.2 percent of all income and pay 5.1 percent of all taxes. The 40 percent of families in the middle earn 33.4 percent of all income and pay 30.9 percent of all taxes. However unfair to families earning more than $60,000, the system gives superficial solace to the other 60 percent of families, even if they also think that tax levels are too high.
The serious question is this: Does progressive taxation, in fact as opposed to myth, create social equality? This, of course, depends on your definition of social equality. By Classical Liberalism's strict definition, social equality can only mean the equal treatment of individuals under the Rule of Law, thus ensuring equality of opportunity. Loss of social equality comes when governments discriminate either for or against identifiable groups or specific individuals.
The cruder, if more popular, view of social equality touts the relative equality of income, the gap between the rich and the poor. Some economists and social activists wring their hands over the latest Gini coefficient numbers (if everyone had the same income, the coefficient is zero; and, if one person had all the income and everyone else held none, the coefficient is one). They treat the Gini coefficient as the Dow Jones Index of social equality. But however interesting this year's number is, it's meaningless.
What matters is income mobility. Are hard working poor earning more and the wastrel rich earning less over time? Is Jeeves' income going up and Bertie Wooster's going down? Measuring the income gap between the rich and the poor every 10 years makes no sense if it's not the same people in each group. It hardly proves worsening social inequality if a rich man after a decade of cocaine and fast cars finds himself relatively poorer in 2000 than he was relatively richer in 1990.
If highly progressive taxation violates the classical definition of social equality, does it, at least, promote income mobility? Evidence, to date, is suggestive, but not conclusive - much like the existence of water on Mars. In the US, with its less progressive tax system, Thomas Sowell in Vision of the Anointed cites a government study that found that for people who were 10 years ago in the bottom fifth of the income scale, they were more likely to have become rich than to have stayed poor. Unfortunately, Statistics Canada has yet to compile similar data. I suspect we will find that income mobility in Canada will be less than in the US, and that progressive taxation deserves some of the blame.
Finally, what should be done to challenge Canadians to get more concerned about how much tax they pay? If the dog-who-didn't-bark clue is the myth of the "social equality," then it's time to expose it as a false benefit. It needs to be proven once and for all that the "equality" of Canada's progressive taxation creates social inequality by making it harder for poor individuals to move up the income ladder. Canadians may warm to a flat tax once they see proof that progressive taxation promises, but does not deliver, social equality. "Bark, Spot, bark!"
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