Losses to society outweigh benefits of tax cuts
As we approach the annual due dates for income and property taxes, my thoughts go to the range of consumption taxes we pay every day. The history of one such tax, the federal Goods and Services Tax , is edifying.
As the name indicates, the MST was levied at the manufacturing stage of products. The tax was hidden in the cost of goods sold to wholesalers and distributors. At the retail level, customers could not know how much of a product’s price related to its production and how much to taxes paid to the federal government.
Expanding the tax base to include services allowed the GST to be set at a lower rate than the MST to match the revenue generated by the latter. Economists had calculated that a GST rate of 9 per cent would be required to replace the revenue generated from the MST’s 13.5 per cent. Politically, however, a 9 per cent federal sales tax on previously untaxed services, although revenue-neutral overall, was problematic.
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