My economics professor and I had a debate in class the other day. In the early months of the recession, the conservative government here in Canada decide to reduce the Goods and Services Tax (GST) by 2%. The move was to embolden consummer confidence and therefore, increasing revenue for businesses. GST is charged on any purchase made in Canada, it's a federal tax and it was set at 7% before the decrease. The debate lies whether the government should reinstate the previous rate of 7% or not. Pros: - Statistics Canada reported that consummer confidence only slightly climbed since the tax reduction. - The tax bears a $200,000,000 loss in revenue. - Consummers will not react negatively to rate previously accepted. Cons: - Consummer confidence has been measured in a short period of time and is poised to keep increasing. - The loss in revenue can be balanced by elevating the cap on CPP contributions and cutting "pork projects" that syphon funds out of the coffers. I am personally against a tax increase, it's a textbook no-no in a recession. We give $30,000 to a biologist to research the reproduction patterns of bloodworms but we should bite the bullet and suffer an increase in taxes when we run out of money? Don't get me wrong, I love bloodworms, they're great for fishing and my beta fish at home loves 'em too. But it's this kind of spending that just makes me want to shake my head. My professor, in favour of the increase, says that it's ridiculous to expect coming out of a recession unscathed. He compares it to the doctor telling you that you need an operation to remove a tumor be he's not going to do it, because it might upsets you. I see his point but raising taxes in a recession just seems wrong. What do you guys think?
I think you are correct. The economy is like a rubber band, or spring with its tension released, but only in REALLY slow motion. It will take a few years to see the gains. Consumer confidence unfortunately is driven by all the media noise and is usually off by a fair margin in comparison to reality. If this helps use President Reagan's tax reduction that brought us out of the 70's era recession. The growth from that lasted almost two decades and resulted in MUCH NEEDED welfare reform. The proponents for raising taxes here in America are wanting to re-establish that welfare state once again, they want the old glory big government dependence days back again. An army of sponges at their bidding call to keep them in power.
http://www.heritage.org/research/reports/2003/08/the-historical-lessons-of-lower-tax-rates The Historical Lessons of Lower Tax Rates Published on August 13, 2003 by Daniel Mitchell, Ph.D. Look here for more detail to use in your class. http://www.heritage.org/Research/Reports/1996/07/BG1086nbsp-The-Historical-Lessons-of-Lower-Tax