The Politics of Tax Cuts
Author:
Mitch Gray
1999/08/01
Last week, Premier Ralph Klein hurled both the legislature press gallery and his own Treasury Department into a wall of confusion surrounding the province's proposed tax cut schedule.
To put it in a nutshell, Mr. Klein wants to speed up tax cuts. No problem there - surging oil and gas revenues should make that possible. The difficulty lies in the political question of who gets the tax break first - the rich, the poor, or the middle-class.
Under Treasurer Stockwell Day's original plan every Albertan, rich and poor alike, would receive a tax break. Due to administrative headaches with Ottawa, however, the "rich" would begin to get a relatively small break a year in advance of the "poor". Realizing, months after tabling the original plan, that this might not look so good, the premier blurted out that he wanted to change the whole deal.
Armed with a very frail understanding of both the income tax system and his Treasurer's proposals, Mr. Klein suggested that the first order of business ought to be an increase in the basic personal exemption. This is impossible, of course, because the province's basic exemption is merely an extension of the federal basic exemption that can't be changed without Ottawa's participation. So the premier's plan wouldn't work.
What's next then How does Mr. Klein save face and deliver on his promise to give lower income Albertans first kick at the tax cut can
At least three immediate possibilities come to mind. First, he might do as has been suggested by the feds, and fool around with something called the "Alberta selective tax reduction". Right now, the selective tax reduction only provides a maximum tax reduction of $430 per person. Mr. Klein could increase this amount. To do so, however, would mean complicating the tax system even more than it already is - a policy contrary to the government's stated objectives and its single tax proposal.
A second option would be to increase the Alberta Employment Tax Credit. This would give employed low and middle-income families with children a break. It would work, but it would also shift the tax burden onto the backs of those without kids, regardless of their income.
A third option, and the one that makes the most sense, would be to do as the Liberal opposition has suggested, and eliminate the province's flat tax ahead of schedule. While it wouldn't give the poor a tax cut ahead of the rich, it would give everyone a break simultaneously. That might not be quite as sexy a sales pitch as Mr. Klein is looking for, but it's better than nothing - which is what he's got right now.
Whatever he chooses to do, the premier needs to stick more closely to the script. Treasurer Day has provided the premier with an outstanding blueprint for tax cuts and tax reform. The more the premier confuses and confounds the issue, and the more he deviates from the plan, the more difficult it will be to push through any tax cuts - period. Let's not let a good thing slip through our fingers.