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Do governments have a window of opportunity to raise taxes?
The opinion of citizens on this issue is, of course, not all black and white and there have been tax hikes that were largely politically costless in recent years. (Pexels photo)
The COVID-19 pandemic has forced the federal government to do two things. First, create and quickly implement new policies and programs to mitigate the health effects of the virus. Second, to find ways to support lost income for individuals affected by the economic fall out. Many are now wondering whether these income support programs are here to stay or if the current crisis marks a turning point in the debate about the scope of intervention by the state. Our latest study into how Quebecer’s feel about taxation suggests that now is a good time to propose raising taxes, possibly to cover the costs of the response to the current crisis.
The federal government has stated its intention to reform Employment Insurance (EI), which was the object of sustained criticism for a long time. Proponents of various basic or universal income schemes have taken the introduction of the Canada Emergency Response Benefit (CERB) as a case study of what the federal government could implement with political will.
Any significant expansion of the state would likely require new sources of funding, particularly considering that the federal government was already running a deficit even before the pandemic hit. Raising taxes is a difficult political proposition, as was made clear in the debate about forcing online businesses to collect GST, the so-called “Netflix tax.”
The opinion of citizens on this issue is, of course, not all black and white and there have been tax hikes that were largely politically costless in recent years. The current pandemic, and the increased role of governments in its response, is a very atypical context in which citizens might view public intervention and their contribution to it under a different eye.
Some of us at Université de Sherbrooke’s Research Chair in Taxation and Public Finance have been tracking the opinion of Quebecers about taxes for close to 15 years. In a paper recently published in Canadian Public Policy, we entered new political territory regarding taxes by fielding a survey of Quebec adults in the middle of a pandemic crisis. As the following graph shows, Quebecers have never been so tolerant of their relatively high level of taxation.
Our intuition was that individuals receiving Employment Insurance, CERB or Canada Emergency Wage Subsidy payments would very clearly see what they get for what they pay in taxes. Such individuals, and there are a lot of them considering the severity of the crisis, should be driving a change in the perception of taxes.
But our analysis clearly invalidates this idea. The use of emergency benefits was not associated with the opinion of individuals about taxes. Having higher income, being younger or female as well as perceiving public funds to be mismanaged were all associated with the perception that taxes are too high. Being a recipient of CERB or some other form of COVID-related support was not.
Moreover, our respondents’ use of “regular” public services such as schools or hospitals did not explain whether they thought they paid too much tax or not. Our general idea was that higher use of public service would be associated with a higher tolerance for the level of taxation. The pandemic would offer us an experiment to test that link because it created a sudden and very significant expansion of public services. Our hypotheses are invalidated both when considering new and existing policy.
Because we felt citizens might be in a temporary mindset due to these current exceptional circumstances, we asked them if they would be willing to pay more taxes in the future to finance increased investments in public services. A majority indicated that they would be willing to pay more. This group even included respondents who believed that their taxes were already too high.
The results of our analysis were very similar to those we obtained when looking at current tax burdens. The opinion of individuals about future taxes is not driven by their current use of public programs. In both cases, it seems that citizens form views about what the adequate level of taxation should be by thinking about society as a whole and not by making an individual cost-benefit analysis. This contradicts those that say that governments are “bribing their citizens with their own money.”
Our results show that there is a political window of opportunity for higher taxes in exchange for better services, at least in the short term. They also show that citizens are more sophisticated than simply thinking about how much tax they pay and what kind of services they personally receive. Whether it is for a smaller or bigger state, if policy-makers are willing to articulate new visions about taxes, spending and society, citizens are likely willing to listen.
The study is based on a Léger survey that took place between May 1st and 3rd, 2020. Respondents were selected from the firm’s web panel which includes more than 200,000 adult Quebecers. The original sample included 1,004 respondents but analysis was restricted to a subsample of 903 who answered all relevant questions (for a response rate of 8,4 percent according to the American Association for Public Opinion Research’s RR1 definition). Results were weighted by age, gender, region, language, education and presence of children to correspond to Statistics Canada’s Census.
This article first appeared on Policy Options and is republished here under a Creative Commons license.
