Get ready for higher taxes

What Roosevelt said was really a concise way of explaining how the realpolitick works, which is much like hydraulics: pressure here causes pressure there, and so on. The principle he was expressing then is just as valid in the politics of today.

A savvy politician will not invest political capital in any issue until he or she is sure there is enough political return to validate a strategy. This is why no politician with any survival skills would dare to advocate a fiscal deficit two years ago, but will now. Public attitudes (therefore, political demand) change.

As for higher taxes, there are many signs of a similar political metamorphosis.

In all the excitement in March and April about whether Thomas Mulcair should be dethroned as federal New Democratic Party leader, Ed Broadbent, a former NDP leader, had some things to say that didn’t get the attention they should have.

The biggest crisis facing the federal government, Broadbent said, is fiscal imbalance. This is an abstract and nicer sounding way of saying higher tax revenue is urgently needed to sustain the government services Canadians now take for granted, such as health care, the Canada pension plan (CPP), old-age security, etc.

Broadbent quoted from the Canadian Centre for Policy Alternatives’ annual alternative budget this year: government spending today accounts for less of the economy than it did before the Second World War. This, of course, was before Canada had to fund unemployment insurance, the CPP, health care or old-age security.

A week after Broadbent made those remarks, angry NDPers gathered in Edmonton. When they weren’t busy dumping their leader, they talked about sticking it to the rich with all sorts of higher taxes, from raising corporate taxes to taxing financial market trades.

The NDP may never come to power federally. But they probably will continue to be very useful to the Liberals because the NDP helps to construct the public consent necessary to introduce left-of-centre policy later.

Lower taxes have been the operative political mantra for three decades in Canada and elsewhere. But reduction of government services hasn’t been. Perhaps this is why the March 22 federal budget was silent about how long the Trudeau government will be running deficits. Nor did the budget have anything to say about lower taxes.

While the price of oil may be stabilizing around US$40 a barrel now, the budget projected oil at US$20 a barrel – a sign the Liberals are using their old trick of lowballing economic expectations so that the ultimate fiscal result exceeds voter expectations. But that kind of fiscal massaging won’t take care of all of a chronic deficit.

The Panama Papers scandal, with its exposure of massive international tax evasion, is likely to be an important tipping point in the global discussion on this issue, as French economist Thomas Piketty noted in France’s Le Monde newspaper last week.

There is a growing resentment among middle-income voters throughout the developed world who believe they are paying more than their share of taxes, while the very wealthy can hide income offshore, break financial regulatory rules with impunity or enjoy returns on capital that consistently outweigh economic growth.

Some of that public resentment is justified. We do live in a second Gilded Age, with concentrations of enormous wealth in the hands of a tiny minority. As for the rest of that resentment, it is important to remember that perception is what drives politics.

This truism probably is why Corporate Canada will not object when the Liberals start talking about raising the goods and services tax (GST), in the hopes this country’s corporate tax rate of 15% doesn’t become a compelling political issue.

The two percentage points that the Conservative government of former Prime Minister Stephen Harper cut from the GST a decade ago now costs the federal treasury at least $14 billion a year. Restoring the tax to its original level could help appease an angry public.

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