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 Beyond The Commons

Aaron Wherry covers all the goings-on in and around Parliament Hill. Follow Aaron on Twitter: @aaronwherry

Categories: Beyond The Commons, Capital Read

'A price solution for an income problem'

by Aaron Wherry on Tuesday, October 26, 2010 1:08pm - 0 Comments

Stephen Gordon questions the NDP call for a tax break on home-heating costs.

If we’re concerned about the income problems associated with home heating costs – the affordability issue – the proper remedy is an income solution: give more money to low-income households. If we’re concerned about whatever price problems there may be, the proper remedy involves increasing the cost of GHG-emitting home heating. And if we’re concerned with both, we can implement both remedies simultaneously: increase the cost of home heating and give more money to low-income households.

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  • John

    Stephen Gordon should run for MP

    • Peterborough Dave

      There is no place for a man like him in government.

      Check that.

      There is no place for a man like him in a political party.

    • Stewart_Smith

      As much as I appreciate Gordon, isn't that final solution pretty close to the Green Shift?

      • Andrew (not PorC)

        Yes. The Green Shift was good policy.

      • CAPS

        You beat me to it Stewart. That is in large part what the Green Shift was.

        The country missed a great ooportunity to implement a forward thinking policy but as we must all remember, this is a democratic society and not a technocratic society. That means that even if you have the best policy you MUST get the public to buy in.

        However, I would hope that debate would take place in an open and respectful way. Not with smears, attacks and outright lies from a brutish government, carried along and giddily reported by a media that didn't want to think to hard.

        • Mike T.

          PERMANENT TAX ON EVERYTHING!!!!!!!

          sorry.

      • madeyoulook

        isn't that final solution pretty close to the Green Shift?

        I seem to recall Dion having pandered to preferred-polluters, rural folks who are over-represented in the House of Commons have legitimate energy needs to travel and zoom their ATVs through the countryside ship their goods to market.

        • kcm

          I don't think you're entirely right. The plan was to not have the CT apply to gasoline, since the market was said to be dealing with that – a political calculation no doubt. The pandering, if i remenber correctly, was to use some of the revenue for social programmes. This was extremely dumb, as it only played into Harper's hysteria over socialist income redistributon schemes. I still think the CT was a good idea…but boy did it get the worst possible salesman.

  • Orson Bean

    The NDP proposal is classic retail politics. And retail politics is pretty much the opposite of good policy-making.

    • Habitant

      Agreed… When Harper came riding in on a promise to lower the GST by one (then two) percentage points, it was terrible policy-making. In fact, it was much more ''classic retail politics'' than this proposal.

  • Orson Bean

    And another thing: if the NDP really cared about the environment, they wouldn't have opposed the carbon tax in BC.

    • RayK

      The NDP favours cap-and-trade. Carbon taxes are a silly idea that are far less effective in achieving precise, predictable reductions in greenhouse gas emissions.

      • Andrew (not PorC)

        Except cap-and-trade is almost impossible to defend from political corruption by vested interests. Coal, agriculture, oil and gas, automotive, etc. will all take their cuts until nothing is left.

        Hence, the reason there is not yet a single meaningful carbon cap-and-trade system in existence.

        • RayK

          That's simply not true.

          The European Union Emissions Trading Scheme is the largest effort to deal with climate change anywhere in the world and it's cap-and-trade. There are also just as many exemptions under carbon taxes as under cap-and-trade (Dionb's plan exempted more than 50% of all GHG emissions). Even if any of this was true, it would still be irrelevant since no one in any jurisdiction has ever enacted a carbon tax plan with high enough tax increases each year to significantly reduce emission and they never will. It is just political window dressing.
          http://en.wikipedia.org/wiki/European_Union_Emiss…
          http://www.pewclimate.org/press-center/opeds/hand…

          • Andrew (not PorC)

            The cap in the EU is hardly binding. The price of allowances under the scheme have collapsed due to what amounts to pork, corporate welfare and corruption. It's all just window dressing. The real carbon policy in Europe is the system of substantial taxes on many fuels, which makes a much larger impact on consumption than a carbon tax on the order of <10 euros/tonne CO2.

            The volatility in emission allowance prices makes investing in emission reductions highly risky. Price certainty could be used to build business cases much more readily. There is nothing magic about cap-and-trade. Fixing quantity supplied rather than price results in massive price spikes and collapses, causing a great deal of economic instability. Any binding cap leading to a price spike would be no cap at all, as the public outcry would result in 'relief' in the form of the creation of additional allowances.

          • RayK

            The EU ETS is binding. The price "collapsed" because the maximum emission levels allowed in the early years of the program were higher than BAU emissions. As with Canada, 2006 was a particularly cold year with particularly high emissions. The EU ETS went into effect in 2007 when emissions levels were naturally dropping. When outside factors caused emissions to drop the market adjusted lowering the price of emissions. In other words, the system worked perfectly.

            There's no evidence that price changes will involve massive spikes. That is just speculation based on cap-and-trade systems for NOX and SOX from coal fired power plants–a completely different market. These fluctuations and risk-costs will account for a relatively small protion of the cost of most products and will be largely absorbed companies farther up the food chain.

            Ultimately, we need the price of emissions to float naturally to ensure we actually hit our GHG emission target. A fixed price that has to be raise every year and then adjusted to meet changes in exogenous month-to-month factors is simply politically untenable.

  • John

    Carbon taxes don't actually do anything to reduce emissions, but Liberals can't wrap their ego centric partisan heads around it.

    Retail politics, because regulation is a horrible thing, look how well deregulation has worked in every other sector. Oh, wait, don't.

    Yes, heaven forbid anyone help the poor, because they choose to be poor. This Stephen Gordon sounds like a Conservative twit.

    • John D

      They do if they're done right

    • madeyoulook

      This Stephen Gordon sounds like a Conservative twit.

      You really really REALLY do not know Stephen Gordon…

    • Thwim

      Well no, they don't if you're into burning money for your heat.. as apparently you are.

      Most people, however, when given the choice, will choose to go with an option that costs less. And if one alternative costs more than another because of carbon taxes.. which way do you think the average consumer will go?

  • LaxAtlDfwYow

    Let's not forget what created the Ontario/BC HST problem in the first place: two governments looking for a tax solution to a spending problem.

    Certainly in the Ontario case, the crazed provincial spending spree predated the recession by more than 4 years and continues to this day. Arguing, now, solely about a tax on home heating, conveniently ignores the real problem.

  • BGLong

    Yup. Every morning on the way down to my neighbourhood Tim's I have to elbow
    my way through those hordes of ravening politicos and pundits demanding that
    we give money to the poor. Always in the way.

  • http://nottawa.blogspot.com Mark

    Again, the memory of the Press Gallery is sometime astounding. This was done before, and if memory serves, the NDP opposed it.

    It was a far from perfect solution, as you'll recall the cheques were sent to every GST refund recipient, some of whom did not pay heat bills, and others who were university students or incarcerated offenders.

    But as flawed as it may have been, it was a heck of a lot more efficient than anything the NDP is currently proposing.

    We're now on day five of Jack's campaign to cut "heat" taxes, and still not one credible question to him from any noteworthy media on how he intends to do such a thing.

    • Orson Bean

      Agreed. Aren't reporters awesome sometimes?

    • RayK

      "still not one credible question to him from any noteworthy media on how he intends to do such a thing."

      Costs $700 million per year. Home heating products would be exempted from the federal sales tax (GST or federal portion of the HST). The "how" is certainly not complicated.

      • http://nottawa.blogspot.com Mark

        Sure it is – he has yet to define what a home heat product is, or how they'd be exempted.

      • http://nottawa.blogspot.com Mark

        Costs $700 million based on what? Because a radio ad says so?

        Pull the other one.

        • RayK

          If someone wants to challenge the NDP's estimates they are free to do so, but no journalist or other political party is–and when estimates are wrong, they always do.

          • http://nottawa.blogspot.com Mark

            Now we've come full circle. Because nobody asked Jack Layton, he must, therefore be correct.

            wow

    • madeyoulook

      and still not one credible question to him from any noteworthy media on how he intends to do such a thing.

      That would be a deserved smack of our national media if, you know, Jack Layton had a snowball's chance in an oil furnace of ever becoming Prime Minister.

  • Dot

    Read the comments to Gordon's piece. It already exists.

    • Mike T.

      I am glad to hear it.

  • NorthernPoV

    NDP
    No Damn Principles

  • Andrew (not PorC)

    That's still less efficient than giving money to poor people. You'd cut electricity prices for the rich as well. Not to mention that subsidizing electricity consumption is bad policy for conservation, etc.

    • Dot

      Read the comments to Gordon's piece. Cross subsidizing from large consumers to small consumers. And financial penalties.

  • RayK

    Stephen Gordon's post on this issue is thoroughly wrong.

    First, he disingenuously claims that this tax cut would benefit the wealthy more than the poor even though his own chart–properly interpreted–shows that as a PERCENTAGE of income, low-income households spend far more on home heating than wealthy households. Low-income households spend more of their income on home heating; they get a bigger break.

    Second, Gordon tries to wave this inconvenient fact away by claiming that even the Bush tax cuts meet this criterion. They don’t. Gordon links to a piece that shows how the Bush tax cuts were larger for low- and middle-income families as a percentage of their INCOME TAX bills. This, of course, is totally irrelevant. Most Americans pay more in payroll taxes than income taxes–not to mention property taxes and sales taxes. Most low-income Americans also–as kind of goes without saying–pay less in taxes to begin with than wealthy Americans. Unlike the NDP’s modest plan, the Bush tax cuts gave far more to the rich than they did to the poor.
    http://www.cbpp.org/cms/?fa=view&id=1240

    • RayK

      Third, no one said this proposal was only about helping the poor. There are plenty of working-class and middle-class families in this country that live paycheque-to-paycheque and could use a break on their home heating bills. From an economist’s viewpoint subsides are all about price, but from a policy perspective they can also be used to target benefits to those who need them most.

      The question is ultimately whether we better assist those at various levels of the income spectrum to pay for essential needs by (a) giving direct, lump sum credits and transfers, or (b) removing consumption taxes from essential products–no GST on groceries and the GST rebate as just two examples. There are pros and cons. Sure, removing the federal sales tax from home heating has a price effect–it encourages some to spend more (bigger houses?) and discourages others from spending less (conservation?). On the other hand, a simple cash transfer can’t take into account all of the circumstances that drive a household’s needs–number of people, location, available means of heating, the weather in a particular year–while a tax exemption can.

      There is merit to both approaches.

      • Andrew (not PorC)

        For your third point, if you want broad tax relief, lower income taxes on the low end by raising the personal exemption or cutting the marginal rate in the bottom bracket. More bang for the buck than exempting heating fuel from HST.

        • RayK

          But that still doesn't target households based on their actaul needs–number of people, location, available means of heating, the weather in a particular year.

          A single person living in an apartment in Vancouver making $50,000 in a warm year gets the same personal exemption as a single mother of three living in Timmins in a cold year making the same amounnt. Yes, tax credits can be designed to account for some of that, but not nearly as well as the market (i.e. how much people actually spend on home heating).

          I do agree with your point in a larger sense, though. We should a tax credit system with a mix of personal and family exemptions, credits capped by product and amount (housing up to X gets a Y credit) and also products that are just tax free. Perhaps, in a perfect world, home heating belongs in the second category not the third, but my overall point was that the issue is not nearly as cut and dry as Stephen Gordon makes it out to be.

          • Andrew (not PorC)

            Why do we need to micromanage such subsidies? Heating fuel is not what people want. They want warmth. And subsidizing heating fuel discourages investments in efficiency. Why buy a new furnace that is more efficient if you get a 50% rebate on your home heating fuel? And you want to penalize people who make lifestyle choices that consume less resources, and reward those who consume more.

            It's wasteful and paternalistic to give these silly little tax exemptions. If you want to help people, increase their income through transfers or income tax reductions. Subsidizing some goods and not others has usually ended in tears. This is why we created broad consumption taxes like GST/HST.

          • madeyoulook

            What Andrew said. Give poor people enough to not-freeze-to-death and not-starve-to-death, and get off all these stupid little mini-bandwagons already.

          • RayK

            Again, this is not about poor people. Again, you completely ignore the problem of targeting those who need the most help. Households making $50,000/year aren't poor, and they aren't all the same.

          • Andrew (not PorC)

            This is the opposite of targeting people who need help. We're showering everyone with money. Uncle Jack's fire sale: 5% rebate for burning stuff. Rich? Who cares? Using the energy for Christmas lights, heating your hot tub in January or to melt the snow on your driveway? I guess those all create heat, so why not!

    • Andrew (not PorC)

      Take the $700 million and send it to poor households. This will benefit them more than an HST exemption by exactly the amount that would go to high income households.

      • RayK

        But it's not just about poor hoseholds. Sure, I wouldn't really care if we cutoff households making over $100,000/year, but that's probably 10-15% of the cost of this plan (and part of that would be eaten up by administrative costs).

        • Andrew (not PorC)

          I make far less than $100k/year, and I don't need subsidized heating fuel. I am not poor. I don't need subsidies. Every dollar wasted on subsidies for me could be used to help the genuinely poor or lower my taxes.

          • RayK

            How is this not lowering your taxes? It's about lowering consumption taxes on essential items–a long standing NDP policy that's already law with regard to housing, food and prescription drugs. The NDP wants to extend it home heating (not just oil, but gas and elecricity as well from the reports I've read). This is about shifting the consumption tax base off essentials goods and services (rather than more discretionary or luzury tiems) to make life more affordable for everyone from low- to middle-income households. It's not just about helping the poor–that was Gordon's made up premise.

          • Andrew (not PorC)

            Subsidizing particular goods through preferential tax treatment is tax relief, just as the transit pass tax credit is not a tax cut.

            I'd much rather an income tax cut than subsidized fuel, food, or drugs. Then I could use the money on anything I like, and I wouldn't forfeit the savings by consuming less of the above. If I move to a smaller home that uses less energy to heat, should I forfeit the tax savings? Heavens why?

            This is sheer insanity. If these things are essentials, give every man, woman and child an allowance to pay for these items. The allowance should not be sensitive to how much they choose to consume. Does this scheme cover electricity? Either way you lose: if not, why penalize those who use electric heat? Is so, why subsidize non-essentials like big screen TVs, laptops, pools, etc.? Same goes for natural gas used to heat swimming pools and jacuzzis.

            There's just no end to the sillyness of this policy. Give people money, don't buy them stuff they might not want.

          • Andrew (not PorC)

            "is tax relief"

            should be

            "is not tax relief"

          • RayK

            You're still not address the point of how you build a tax credit that takes into account the level of need of those receiving it or why the lack of assessing should need has quantitatively more importance than the fact that some rich person might use slightly more natural gas because the price is slightly lower.

          • Andrew (not PorC)

            Subsidizing heating fuel doesn't target a need either, as I've shown: it could be used for many things other than home heating.

            Your use of the word 'need' is pretty nebulous. You're claiming that consumption of energy is proportional to 'need', which doesn't seem to be the case, at least not strongly. I think the people who 'need' help are those with low incomes.

            I'm saying we don't need a silly tax credit. They're wasteful, pointless and inefficient. What's next, a refundable tax credit for bananas? But not plantains?

  • RayK

    What are you talking about? NDP MPs write and pass legislation all the time. They routinely do more legislative work than the members of any other party. Just because you don't know something, doesn't mean it doesn't exist.

    "In three ads, to run in both official languages, boil down to one plea: Take the federal sales tax off oil, natural gas, electricity."
    http://communities.canada.com/vancouversun/blogs/…

    "The NDP estimates it would cost Ottawa $700-million in foregone revenue."
    http://www2.macleans.ca/2010/10/04/idea-alert-30/

    • http://nottawa.blogspot.com Mark

      Ah yes. They run ads. That's about the same thing as enacting a tax exemption. Just put it on the radio and make it so. The NDP can't even tell us what a home heating product is, or how they plan to exempt it from tax.

      C'mon Einstein. Try again.

      Here's my electricity bill. It;s for 400 dollars. How is Jack Layton going to make it tax exempt? How much of it is going to be tax exempt? And How? Will it be a refund that I have to mail in? Will it be a point of sale rebate from the vendor? What if I use oil? What if I use gas? What if I use all three? Where is it going to say how much of my electric bill is used for the heater vs. my pinball machine or my beer fridge? And where on the gas bill does it say if it's for my hot tub, my barbecue or by furncae? Are you going to hire a thousand bureaucrats to figure it out? Or start a "Heat Registry"? What if my landlord pays the bill and passes on the cost to me? I could go on.

      These are pretty simple questions. One week in, Jack Layton still has no response.

      • RayK

        What are you taking about?

        The above report says there will be no federal sales tax on oil, gas and electricity. It will cost $700 million a year. The tax will be removed in the same way that it is on other products like and prescription drugs. This is not complicated.

        • http://nottawa.blogspot.com Mark

          So now it's all forms of energy that you're going to exempt from the GST? Really?

          So now you have no way of distinguishing a residential purchaser from a commercial one. Exempting sales tax on all forms of energy sold in Canada would cost in the billions, annually.

          Your version of event changes with every comment. Maybe you should call Jack's office for talking points before you dig yourself a deeper hole.

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