William Watson: Beer is a good place to start the tax revolt

William Watson: Beer is a good place to start the tax revolt — via fpcomment

But the economist in me wants to quibble. The tax on beer isn’t actually going up as a result of an annual increase tied to the consumer price index. It’s going up in nominal terms. But in real terms — relative to all other prices — it’s staying the same. If the tax: when you’ve got it, up-and-down all becomes relative.

Our not knowing makes things way easier for government. Is Parliament avoiding its democratic responsibility by letting the CPI do the heavy lifting on raising the beer tax? Not really, since the tax isn’t really being raised. But it does mean the government doesn’t have to seek legislative permission to raise a nominal tax even if only just to keep it constant in real terms.

The truly damaging effect of indexation, in government and elsewhere, is that it normalizes inflation. We don’t want governments that are inflation-normalizers. We want inflation to be just as much an irritant to them as it is to the rest of us.

Governments generally do impose the discipline of indexed income tax brackets on themselves. Usually they’ve been shamed into it. In tough fiscal times they sometimes resort to only partial indexation, i.e., indexing only above three per cent inflation or so.

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