Stephane Dion's carbon tax details revealed -- permanent income tax cuts!
Monday, June 09, 2008 at 11:57 AM
What we've all been waiting for -- the definitive explanation of just how Stephane Dion's carbon tax is going to work.
Needless to say, the revelation did not come from a news conference or a white paper released through the Liberal Party website.
The details are hidden in Garth Turner's blog...of course.
For those Luddites who think that a carbon tax is a bad thing, Garth Turner explains how the carbon tax works:
The tax-shift plan is about more than cutting your taxes, though. Since Dion wants to put a price on pollution, a major goal is clearly to reduce it. Suddenly companies that clean up their act would be better off financially. Those that don’t, or can’t, pay more.
Would those polluters – oil producers, hydro generating stations, smelters, mills, manufacturers – pass on this new tax burden to consumers in the form of higher prices? After all, this is the foundation of the Conservative attack on the idea. (By the way, Mr. Harper’s government has yet to force any companies to reduce their polluting emissions.)
Well, that’s what the shift in taxes is all about. As the cost of home heating oil, for example, rises gradually over four years, so would family after-tax income thanks to the Dion tax cuts. More importantly, if you made your house more energy efficient, and burned less oil, then you’d be better off financially – since your income tax rate would have been cut permanently. As for gasoline, the Liberal leader has been categoric – no hike in gas taxes since there is already a hefty federal excise tax collected from every litre sold.
A quick aside. Garth Turner lists hydro generating stations as a major polluter. Of course, hydro energy is clean energy. Either this is a typo, or Garth is revealing that the carbon tax is really an energy tax, regardless of the source of the energy. The jury is still out on this. We'll have to wait for more revelations on Garth Turner's blog to clarify this point. We'll put is aside for the moment.
OK, so let's walk through this. Let's consider a major industry, let's say a pulp-and-paper concern. A paper mill uses a lot of fuel, which has now been jacked up in price thanks to Stephane Dion's carbon tax.
No problem. The mill just increases the cost of the products it sells.
Am I, the consumer, getting screwed again?
No, says Garth Turner. See, I get to pay less income tax. The money the government collects from the pulp-and-paper concern is given to me as a tax break, so I can afford to pay for more expensive paper.
I'm not actually ahead, since I'm still out the money and I still have the same amount of paper.
But then I'm not behind either. Which would be true if the money being given back to Canadians was given back efficiently, that is, no money being shifted remained in government hands to pay for the administration of the tax. The GST costs the government 30 cents for each dollar collected, as a way of comparison. Hopefully the carbon tax will cost nearly nothing to administer, or else I won't see all my money back.
Of course, I'm assuming I'm getting the amount I paid out in carbon taxes back in income tax breaks. If the income tax breaks are divvied up to meet some other goal than to compensate for my carbon consumption (let's say the income tax breaks are geared to reward favoured Liberal constituencies), then I might find myself short-changed.
But even if I did find myself suffering financially as a result of the carbon tax, I can still get ahead, thanks to Garth Turner's explanation of the Liberal plan. All I have to do is borrow money to pay for home upgrades. As Garth Turner explains, I make my home more efficient, because, as you know, the modern building codes in Canada with regards to efficiency are so bad. Double-pane windows? Make 'em triple-paned! Now with the trickle of energy escaping turned into a dribble, I can use the savings from my lowered heating bill to help pay the bank loan I took out for the new windows.
This is what Garth Turner means by being "better off financially". It works because the income tax cut is permanent.
Got that? My income tax has gone down and won't go back up. Ever. It's permanent!
Wow. That is tempting. I mean, Garth Turner even explains how it all hangs together. It's worth repeating:
As the cost of home heating oil, for example, rises gradually over four years, so would family after-tax income thanks to the Dion tax cuts. More importantly, if you made your house more energy efficient, and burned less oil, then you’d be better off financially – since your income tax rate would have been cut permanently.
So I pay less in carbon tax because I am more efficient. I pay less in income tax. The rise in prices that the carbon tax has created in consumer goods is offset by the permanent income tax cut.
This is great! I hope it lasts forever!
But then the government is collecting less in income tax. As carbon usage shrinks, the carbon tax revenue shrinks. The taxation of carbon will rise to compensate for reduced revenue, as well as to push Canadians to the goal of 80% reduction in our 2% contribution to global greenhouse gases by next Thursday. Garth Turner reveals that the cost to heat your home will rise year after year as the carbon tax continues to be jacked up. This increase will eat away at the value of the permanent income tax cut.
Since I can only insulate so much, I'll have to find a way to pay for the rising tax, or move my family into an apartment.
Will there be a rule that says that the total amount of carbon tax I pay can never exceed the total value of my permanent income tax cut? Garth Turner doesn't say, so I guess that it is possible that the carbon tax could overwhelm my income tax break.
That would be a shame.
To get out of the hole created by the growing carbon taxes, I would have to join other Canadians in a frantic race to find ways to consume less. People would make their homes as efficient as they can afford. Plans for car purchases would be abandoned. Frivolous spending could disappear entirely.
As their disposable income continues to shrink over time, whatever income there is would be thrown against the rising tide of the Stephane Dion carbon tax, like sandbags against a flooding river. Some people would be able to hold against the deluge, but many would be overwhelmed.
At some point, we'd buy only what food we absolutely must have, takes trips that absolutely must be taken, and live in the absolutely minimum amount of space needed.
Life is reduced to the irreducible.
And that paper mill with the expensive paper? Shut down long ago, I bet, and moved to Mexico.
Glad you could fill us in on the details, Garth.
P.S. To any Liberals reading this. If Garth Turner didn't blab about this sort of stuff on his blog, I wouldn't be able to write it. Just saying.
P.P.S. Oh look, Garth Turner's very public musing, including his admission that the Tory campaign has generated "an avalanche" of emails, is now leading the news. I guess thanks to Garth Turner and his blog, Liberals will have to respond to this development.
