Social Democratic Perspective 1 Tax Reform: A Social Democratic Perspective

Social Democratic PerspectiveSocial Democratic Perspective 11

Tax Reform: A Social Tax Reform: A Social Democratic Perspective Democratic Perspective


Four Big IdeasFour Big Ideas

1. Increase the overall tax level1. Increase the overall tax level

2. Use a broad mix of taxes2. Use a broad mix of taxes

3. Level high incomes3. Level high incomes

4. Rationalize tax expenditures4. Rationalize tax expenditures


1. Increase the overall tax level1. Increase the overall tax level Taxes reflect a moral judgment about Taxes reflect a moral judgment about

which social and economic objectives which social and economic objectives citizens should pursue collectively. citizens should pursue collectively.

Services essential to human development Services essential to human development should be delivered through the public should be delivered through the public sector, paid for with taxes, and be freely sector, paid for with taxes, and be freely accessible to everyone.accessible to everyone.

Investing in human capabilities fosters Investing in human capabilities fosters both equity and economic growth.both equity and economic growth.

No evidence of a need to trade off equity No evidence of a need to trade off equity and efficiency. and efficiency.


The Rhetoric of Tax Politics:The Rhetoric of Tax Politics:The Assault on CitizenshipThe Assault on Citizenship

Taxes are impositionsTaxes are impositions Taxes are burdenTaxes are burden Tax reliefTax relief Increased taxes can not be affordedIncreased taxes can not be afforded Taxes restrict freedomTaxes restrict freedom Taxes usurp individual choiceTaxes usurp individual choice Taxes unjustifiably interfere with Taxes unjustifiably interfere with

private property rightsprivate property rights


Tax Ratio of 19 Selected OECD Countries, 2005Tax Ratio of 19 Selected OECD Countries, 20055

Source: Based on OECD data.

27.3

30.6

30.8

31.3

33.4

34.7

34.8

35.8

36.3

37.5

38.8

40.9

42.1

43.5

43.9

43.9

44.8

49.5

50.7

OECD

0 5 10 15 20 25 30 35 40 45 50Total Tax Revenue as Percent of GDP, 2005

United States

Ireland

Australia

Greece

Canada

Portugal

Germany

Spain

United Kingdom

New Zealand

Netherlands

Italy

Austria

Norway

France

Finland

Belgium

Sweden

Denmark


Tax as percent of GDP of four country groups, Tax as percent of GDP of four country groups, 20052005

6


32.7

34.7

41.1

47.2

Average

0 5 10 15 20 25 30 35 40 45 50Total tax revenue as a percent of GDP, 2005

Anglo-American

Mediterranean

ContinentalEuropean

Nordic

Cou

ntry

gro

up


0

2

4

6

8

10

12

14

16

18

20

22

Chi

ld P

rove

rty

Rat

e

USANZL

GBRIRL

ITAPRT

JPNCAN

AUTDEU

GRCAUS

NLDFRA

CHESWE

NORFIN

DNK

Source: OECD, Society at a Glance: OECD Social Indicators, 2005, p.57. Child poverty data sourced from 1999, 2000 and 2001. Dashed line refers to the country average.

Child Proverty Rate in Selected OECD Countries


AUS

AUT

BEL

CAN

CZE

DNKFIN

FRA

DEUGRCHUN

IRL ITA

JPM

MEX

NLD

NZL

NOR

PRTESP

SWE

CHE

GBR

USA

0

5

10

15

20

25

Child

Pov

erty

Rat

es, a

round

200

0

15 20 25 30 35 40 45 50Average tax revenue as percent of GDP, 1980-2000

Sources: Child poverty rates as appeared on an OECD working paper by Peter Whiteford and Willem Adema, 'What Works Best in Reducing Child Poverty: A Benefit or Work Strategy?' March 5, 2007; OECD Revenue Statistics.

Child Poverty and Tax Revenue

R-squared = 0.54


AUS

AUT

CAN

CZE

DNK

FINFRADEU

GRC

HUNIRL

ITA

JPM

LUX

MEX

NLD

NZL

NOR

POLPRT

ESP

SWE

CHE

TUR

GBR

USA

R-squared = 0.65

20

30

40

50

Gin

i Ind

ex, 2

000


Sources: OECD Factbook 2007 and Revenue Statistics.

Gini Index and Tax Revenue


AUS

AUT

BEL

CAN

DNK

FIN

FRADEU

GRC

IRL

ITA

NLD

NZL

NOR

PRT

ESP

SWE

GBR

USA

R-squared = 0.55.6

.7

.8

.9

1

Eco

nom

ic S

ecur

ity

Index

, 200

4

25 30 35 40 45 50Average tax revenue as percent of GDP, 1980-2004

Sources: ILO, Economic Security for a better world, 2004; OECD Revenue Statistics.

Economic Security and Tax Revenue as Percent of GDP


AUS AUTBEL

CAN

CZE

DNK

FIN FRADEUGRC

HUN

ISLIRL

ITAJPM

KOR

LUX

MEX

NLD

NZL

NOR

POL

PRT

SVK

ESPSWE

CHE

TUR

GBR

USA

R-squared = 0.125,000

15,000

25,000

35,000

45,000

55,000

65,000

75,000

GD

P p

er c

apita

(US$

and

PPP),

2005


Sources: OECD Factbook 2007 and Revenue Statistics.

GDP per Capita and Tax Revenue


Results of Comparisons Results of Comparisons Between High and Low taxed Between High and Low taxed

Countries Countries Nordic countries have achieved dramatically Nordic countries have achieved dramatically

better outcomes than Anglo-American countries better outcomes than Anglo-American countries in the pursuit of their social objectives in the pursuit of their social objectives • Of the 40 social indicators examined, in 21 their Of the 40 social indicators examined, in 21 their

outcomes were significantly better; on 13 other outcomes were significantly better; on 13 other measures they were better. On only 6 social measures they were better. On only 6 social indicators were the outcomes in Anglo-American indicators were the outcomes in Anglo-American countries better and on all of these the rankings the countries better and on all of these the rankings the differences were trivial and could have been due to differences were trivial and could have been due to chance.chance.

With respect to economic outcomes, the With respect to economic outcomes, the differences were a washdifferences were a wash• Nordic countries ranked higher on 12 indicators and Nordic countries ranked higher on 12 indicators and

the Anglo-American countries on 10. In only one was the Anglo-American countries on 10. In only one was the difference significant.the difference significant.


2. Use a broad mix of axes2. Use a broad mix of axes A broad mix of taxes has fewer economic A broad mix of taxes has fewer economic

and political costs.and political costs. EconomicsEconomics

• More economically efficient; More economically efficient; • falls on less mobile factors of production; falls on less mobile factors of production; • competitive pressures on corporate tax ratescompetitive pressures on corporate tax rates

PoliticsPolitics• Represents a bargain between labour (more Represents a bargain between labour (more

public services) and capital (lower taxes on public services) and capital (lower taxes on income from capital)income from capital)

• Tax on income politically divisiveTax on income politically divisive• Taxes on consumption less politically visibleTaxes on consumption less politically visible• Three large tax bases takes pressure off Three large tax bases takes pressure off

loopholes.loopholes.


Tax Mix of 19 Selected OECD CountriesTax Mix of 19 Selected OECD Countries

14


Personal income

Social security

General consumption

Specific consumption

Corporate incomeProperty

Other

0

2

4

6

8

10

12

14

16

18

20

22

24

26

28

30

32Tax

as

per

cent

of to

tal t

ax r

even

ue

1965 1970 1975 1980 1985 1990 1995 2000 2005


Statutory Corporate Income Tax RatesStatutory Corporate Income Tax Rates15

Source: KPMG.

12.5

25

25

25

25

25.5

26

28

28

28

29.51

30

30

30

31.4

33.33

33.5

33.99

40

0 5 10 15 20 25 30 35 40

Corporate Income Tax Rate (%), 2008

Ireland

Portugal

Greece

Denmark

Austria

Netherlands

Finland

U.K.

Sweden

Norway

Germany

Spain

New Zealand

Australia

Italy

France

Canada

Belgium

U.S.


VAT/GST RatesVAT/GST Rates16


0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25VAT/GST rates, 2007 (%)

Canada

Australia

New Zealand

Spain

U.K.

Germany

Greece

Netherlands

France

Austria

Italy

Belgium

Ireland

Portugal

Finland

Denmark

Norway

Sweden


Top Personal Marginal Income Tax RatesTop Personal Marginal Income Tax Rates17


39.0

40.0

40.0

40.0

41.0

41.4

42.0

43.0

44.9

46.4

46.5

47.5

47.8

50.0

50.5

52.0

53.5

56.5

59.7

OECD

0 5 10 15 20 25 30 35 40 45 50 55 60Top personal marginal tax rate, 2007 (%)

New Zealand

GreeceNorway

U.K.Ireland

U.S.Portugal

Spain

ItalyCanada

AustraliaGermany

FranceAustria

Finland

NetherlandsBelgium

SwedenDenmark


AUS

AUTBEL

CAN

CZE

DNK

FIN

FRA

DEU

GRCHUN

IRL

ITA

JPN

NLD

NZL

NOR

POL

PRT ESP

SWE

CHEGBR

USA

14

16

18

20

22

24

26

28

30A

vera

ge P

ublic

Soc

ial E

xpen

ditu

reas

per

cent

of G

DP, 1

998-2

003

(%)

25 30 35 40 45 50 55 60

Average Effective Tax Rates on Consumption, 1991-1997 (%) Sources: OECD Social Expenditure Database. Effective rates by Carey and Tchilinguirian (2000). All OECD countries with data included except Korea excluded as outlier. The horizontal dash line represents an average public social expenditure of 20%, while the vertical dash line represents an average effective tax rate of 44%.


AUS

AUT BEL

CAN

CZE

DNK

FIN

FRA

DEU

GRC

ITA

JPN

NLD

NZL

NOR

PRT ESP

SWE

CHE

GBR

USA

14

16

18

20

22

24

26

28

30A

vera

ge P

ublic

Soc

ial E

xpen

ditu

reas

per

cent of

GD

P, 1

998-2

003

(%)

15 20 25 30 35 40

Average Effective Tax Rates on Capital, 1991-1997 (%) Sources: OECD Social Expenditure Database. Effective rates by Carey and Tchilinguirian (2000). All OECD countries with data included except Korea excluded as outlier. The horizontal dash line represents an average public social expenditure of 20%, while the vertical dash line represents an average effective tax rate of 27%.


.37 .48 23%

.34 .50 31%

.33 .50 34%

.31 .43 27%

.31 .46 32%

.29 .49 41%

.28 .47 42%

.27 .39 30%

.25 .45 44%

.25 .46 46%

.25 .40 38%

.25 .48 48%

.23 .37 38%

.23 .42 46%

0 .1 .2 .3 .4 .5

United States (2004)

United Kingdom (1999)

Ireland (1987)

Canada (2000)

Australia (2003)

France (1994)

Germany (2000)

Switzerland (2002)

Sweden (2000)

Finland (2004)

Norway (2000)

Belgium (1997)

Netherlands (1999)

Denmark (2004)

Source: Calculations by Jesuit and Mahler; available on Luxembourg Income Study web site.

Gini Indices of Market and Disposable IncomeDisposable income Market income

Reduction in Gini indicesdue to redistribution


0.04 (40%) 0.06 (60%)

0.04 (35%) 0.07 (65%)

0.002 (2%) 0.12 (98%)

0.04 (31%) 0.10 (69%)

0.05 (32%) 0.10 (68%)

0.04 (26%) 0.11 (74%)

0.03 (20%) 0.12 (80%)

0.05 (26%) 0.13 (74%)

0.04 (22%) 0.15 (78%)

0.04 (19%) 0.16 (81%)

0.02 (9%) 0.18 (91%)

0.05 (25%) 0.15 (75%)

0.05 (22%) 0.17 (78%)

0.07 (32%) 0.16 (68%)

Taxes

0 .05 .1 .15 .2 .25

United States (2004)

Canada (2000)

Switzerland (2002)

Netherlands (1999)

Australia (2003)

Norway (2000)

United Kingdom (1999)

Ireland (1987)

Denmark (2004)

Sweden (2000)

France (1994)

Germany (2000)

Finland (2004)

Belgium (1997)

Source: Calculations by Jesuit and Mahler; available at Luxembourg Income Study web site.

Shares of Fiscal Redistribution Resulting from Taxes and Transfers

TransfersRedistribution


Effective Tax Rates in CanadaEffective Tax Rates in CanadaEffective Tax Rates in Canada, 1988

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Up to$10,000

$10,001 -$20,000

$20,001 -$30,000

$30,001 -$40,000

$40,001 -$50,000

$50,001 -$60,000

$60,001 -$70,000

$70,001 -$80,000

$80,001 -$90,000

$90,001 -$100,000

$100,001 -$150,000

$150,001 -$300,000

Over$300,000

Source: Frank Bermaeten, W. Irwin Gillespie and Arndt Vermaeten, "Tax Incidence in Canada" (1994), vol. 42, no. 2, Canadian Tax Journal 348-416.

Payroll TaxesProperty Tax

Other Taxes

Personal Income Tax

Commodity Taxes

Corporate Income Tax


Overall Effective Tax Rate in CanadaOverall Effective Tax Rate in Canada

29.2%31.4%

33.5% 34.2% 34.9% 34.5% 33.8% 33.2% 33.3% 32.6% 32.7%30.1%

35.3%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

55%

60%

Up to$10,000

$10,001 -$20,000

$20,001 -$30,000

$30,001 -$40,000

$40,001 -$50,000

$50,001 -$60,000

$60,001 -$70,000

$70,001 -$80,000

$80,001 -$90,000

$90,001 -$100,000

$100,001 -$150,000

$150,001 -$300,000

Over$300,000

Overall Effective Tax Rate in 1988

Frank Bermaeten, W. Irwin Gillespie and Arndt Vermaeten, "Tax Incidence in Canada" (1994), vol. 42, no. 2, Canadian Tax Journal 348-416.

Source:


3. Taxing High Incomes3. Taxing High Incomes The rich are undeservingThe rich are undeserving

• High income individuals do not deserve the vast amounts they High income individuals do not deserve the vast amounts they receive in a market economy nor do they have a moral receive in a market economy nor do they have a moral entitlement to them even if they receive those amounts as the entitlement to them even if they receive those amounts as the result of voluntary exchanges. result of voluntary exchanges.

Inequality threatens democratic and other widely held Inequality threatens democratic and other widely held valuesvalues• The ideals of a modern democratic states can only be achieved The ideals of a modern democratic states can only be achieved

if economic resources are relatively equally distributed.if economic resources are relatively equally distributed. The progressive income tax is an effective policy The progressive income tax is an effective policy

instrument for redistributioninstrument for redistribution• Therefore, an important part of the government’s distributive Therefore, an important part of the government’s distributive

function is to achieve a more equal distribution of resources function is to achieve a more equal distribution of resources than that which results from market forces. The progressive than that which results from market forces. The progressive income tax is an appropriate policy instrument for the income tax is an appropriate policy instrument for the government to use in achieving that objective. government to use in achieving that objective.


Pathologies of InequalityPathologies of Inequality Threatens the equal distribution of political rightsThreatens the equal distribution of political rights Reduces mobility between income classesReduces mobility between income classes Increases criminal activities and other forms of social Increases criminal activities and other forms of social

disorderdisorder Erodes social right to good healthErodes social right to good health Erodes social right to equal educational opportunitiesErodes social right to equal educational opportunities Results in an overall loss of well-beingResults in an overall loss of well-being Creates social waste in winner-take-all labour marketsCreates social waste in winner-take-all labour markets Weakens trust, social capital and social cohesionWeakens trust, social capital and social cohesion Weakens support for the market economyWeakens support for the market economy Reduces rates of economic growthReduces rates of economic growth Shortens peopleShortens people


U.S.

Canada

Australia

0

2

4

6

8

10

Top

0.1

% Inc

ome

Shar

es (%

)

1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010

Note: Capital gains excluded from U.S. series by Piketty and Saez (2006) and Canadian series by Saez and Veall (2005). Certain capital gains included in Australian series by Atkinson and Leigh (2007).

Top 0.1% Income Shares in U.S., Canada and Australia


Major Findings of Top-Income ResearchersMajor Findings of Top-Income Researchers 1. At beginning of century share earned by top 1 percent 1. At beginning of century share earned by top 1 percent

was about 20 percentwas about 20 percent• No progressive taxesNo progressive taxes

2. Their share dropped dramatically before and during 2. Their share dropped dramatically before and during WW II, to about 10 percentWW II, to about 10 percent• Due to fiscal shocks, but also marginal income tax increases to Due to fiscal shocks, but also marginal income tax increases to

between 75 to 90 percent.between 75 to 90 percent. 3. Their share continued to decline during development 3. Their share continued to decline during development

of the welfare state, down to about 7 to 9 percent, until of the welfare state, down to about 7 to 9 percent, until around 1980around 1980• High marginal income rates, and capital transfer taxes, made it High marginal income rates, and capital transfer taxes, made it

impossible for the wealthy to recover their pre-war position impossible for the wealthy to recover their pre-war position 4. Since the early 1980s, share of national income 4. Since the early 1980s, share of national income

received by top 1 percent has returned to Gilded Age received by top 1 percent has returned to Gilded Age levelslevels• ““it is plausible to think that the drastic reduction in top marginal it is plausible to think that the drastic reduction in top marginal

tax rates, which started in the 1960s, opened the possibility of the tax rates, which started in the 1960s, opened the possibility of the dramatic increase in top wages that started in the 1970s, and dramatic increase in top wages that started in the 1970s, and accelerated in the 1980s and 1990s”accelerated in the 1980s and 1990s”

5. Unlike, the earlier Gilded Age, the top income earners 5. Unlike, the earlier Gilded Age, the top income earners share of income is largely accounted for by salary income share of income is largely accounted for by salary income and not capital incomeand not capital income


4. Rationalizing Tax Expenditures4. Rationalizing Tax Expenditures

Tax expenditures – an essential pathway to tax Tax expenditures – an essential pathway to tax reform involves the rationalization of tax reform involves the rationalization of tax expenditures:expenditures:• Tax expenditures are equivalent to direct spending Tax expenditures are equivalent to direct spending

programs and ought to be evaluated, reported, and programs and ought to be evaluated, reported, and subject to the same budgetary process as direct subject to the same budgetary process as direct spending programspending program

• Many tax expenditures Many tax expenditures are inherently unfair and ought to be repealed; are inherently unfair and ought to be repealed; others ought to be converted into direct spending programs; others ought to be converted into direct spending programs;

andand remaining tax expenditures ought to be converted into remaining tax expenditures ought to be converted into

refundable tax credits. refundable tax credits.


Place Tax Expenditures in Separate Part of the LegislationPlace Tax Expenditures in Separate Part of the Legislation

All tax expenditures should be placed in a All tax expenditures should be placed in a separate division of the tax legislation; and separate division of the tax legislation; and preferably in a separate legislative enactment preferably in a separate legislative enactment altogether that allows for the delivery of the altogether that allows for the delivery of the enumerated subsidies by an offset against the enumerated subsidies by an offset against the recipient’s tax liability. recipient’s tax liability.

Advantages of clearly separating technical tax Advantages of clearly separating technical tax provisions and tax expenditures:provisions and tax expenditures:• The tax expenditures are more transparentThe tax expenditures are more transparent• The basic principles that underlie the technical tax The basic principles that underlie the technical tax

provisions are more obvious to judges and others provisions are more obvious to judges and others who wish to understand and interpret the tax who wish to understand and interpret the tax legislation.legislation.

• There will be a line on the taxpayer’s tax return There will be a line on the taxpayer’s tax return which records the taxpayer’s economic income which records the taxpayer’s economic income (income before tax expenditures) which might be (income before tax expenditures) which might be used for a number of reasons. used for a number of reasons.


Tax Expenditures – Convert to CreditsTax Expenditures – Convert to Credits The case for converting tax expenditures The case for converting tax expenditures

that take the form of exemptions or that take the form of exemptions or deductions to credits is straightforward:deductions to credits is straightforward:• It avoids the inequity of the upside down It avoids the inequity of the upside down

effect of deductionseffect of deductions• It avoids arbitrarily tying the value of tax It avoids arbitrarily tying the value of tax

expenditures to a taxpayer’s tax ratesexpenditures to a taxpayer’s tax rates• It promotes efficiency (unless there is It promotes efficiency (unless there is

evidence that an individual’s responsiveness evidence that an individual’s responsiveness to incentives (or the social benefits their to incentives (or the social benefits their activities generate) varies with income activities generate) varies with income


Tax Credits – Make Refundable and TaxableTax Credits – Make Refundable and Taxable

More nearly achieves the objectives of More nearly achieves the objectives of subsidy programssubsidy programs

Removes inequities between large diverse Removes inequities between large diverse corporations and smaller more specialized corporations and smaller more specialized corporationscorporations

Saves the compliance and other costs of Saves the compliance and other costs of having corporations attempt to sell off, in having corporations attempt to sell off, in effect, their excess tax expenditures effect, their excess tax expenditures through leasing and other arrangements.through leasing and other arrangements.

Tax credits are government subsidies and Tax credits are government subsidies and should be taxed in the same way as other should be taxed in the same way as other government subsidies. government subsidies.


Minimize the Use of Tax Expenditures (1) Minimize the Use of Tax Expenditures (1) They disguise the true size of governmentThey disguise the true size of government They require the tax system to have higher tax rates They require the tax system to have higher tax rates

than otherwise would be the case, resulting in than otherwise would be the case, resulting in increased distortions. increased distortions.

Since they are open-ended, they often lead to greater Since they are open-ended, they often lead to greater levels of spending than expected and thus they make it levels of spending than expected and thus they make it difficult to project tax revenues.difficult to project tax revenues.

They lead to unintended inefficiencies and inequities.They lead to unintended inefficiencies and inequities. They jeopardize the main functions of the tax system – They jeopardize the main functions of the tax system –

to raise revenue and to achieve a more socially to raise revenue and to achieve a more socially acceptable distribution of income.acceptable distribution of income.

They complicate the tax system and thus increase the They complicate the tax system and thus increase the cost of both complying with the system and cost of both complying with the system and administering it. administering it.

Embedded in the tax system they are difficult to Embedded in the tax system they are difficult to monitor and adjust.monitor and adjust.

They are often difficult to coordinate with the technical They are often difficult to coordinate with the technical tax system.tax system.


Minimize the Use of Tax Expenditures (2)Minimize the Use of Tax Expenditures (2) They consume and divert the resources in the revenue department They consume and divert the resources in the revenue department

and disputes in their delivery taint the revenue department.and disputes in their delivery taint the revenue department. Revenue officials are unlikely to be experts with respect to the Revenue officials are unlikely to be experts with respect to the

diverse spending programs they are called upon to administer. diverse spending programs they are called upon to administer. Tax lawyers and accounts – dedicated and highly paid individuals Tax lawyers and accounts – dedicated and highly paid individuals

whose job is to find ways to twist tax programs for the benefit of whose job is to find ways to twist tax programs for the benefit of their clients – become involved in their delivery. their clients – become involved in their delivery.

They give rise to abuse and inordinate amounts of litigation as They give rise to abuse and inordinate amounts of litigation as taxpayers, advised by aggressive tax planners, attempt to qualify taxpayers, advised by aggressive tax planners, attempt to qualify for tax breaks that often turn on arbitrary and ambiguous for tax breaks that often turn on arbitrary and ambiguous distinctions. distinctions.

Their cost and even their existence are not transparent or subject Their cost and even their existence are not transparent or subject to budget scrutiny and, therefore, once enacted they are rarely to budget scrutiny and, therefore, once enacted they are rarely repealed.repealed.

They encourage interest groups to lobby for additional relief since They encourage interest groups to lobby for additional relief since once a few exemptions are granted there is often little basis for once a few exemptions are granted there is often little basis for denying them to others and the fact that a particular case appears denying them to others and the fact that a particular case appears analogous to one of the exemptions is always a plausible analogous to one of the exemptions is always a plausible argument. argument.

They contribute to the public’s cynical attitude toward the tax They contribute to the public’s cynical attitude toward the tax system and thus erode the civic responsibility to pay taxes.system and thus erode the civic responsibility to pay taxes.


Convert Tax Expenditures to Direct Spending Program: Convert Tax Expenditures to Direct Spending Program: Example - The Charitable DeductionExample - The Charitable Deduction

• Instead of a tax deduction for charitable contributions, Instead of a tax deduction for charitable contributions, the government might match private donations to the government might match private donations to charities by providing a grant that matched some charities by providing a grant that matched some percentage of private donations received by charities. percentage of private donations received by charities. The matching grant would be paid directly to charities, The matching grant would be paid directly to charities, quarterly. quarterly.

• Advantages:Advantages:• Promotes pluralism and altruism– everyone’s contribution Promotes pluralism and altruism– everyone’s contribution

attracts the same percentage of government fundsattracts the same percentage of government funds• Controllability – the government is able to immediately Controllability – the government is able to immediately

determine and adjust the amount spentdetermine and adjust the amount spent• Accountability and transparency– the amount of government Accountability and transparency– the amount of government

funds received by each public benefit organization is easily funds received by each public benefit organization is easily determineddetermined

• Since individuals donors are unlikely to reduce donations by the Since individuals donors are unlikely to reduce donations by the full amount of the lost tax benefits, the scheme increases full amount of the lost tax benefits, the scheme increases funding available to the voluntary sector funding available to the voluntary sector

• The tax system and tax department is no longer involved in this The tax system and tax department is no longer involved in this spending program, with all the advantages that entails.spending program, with all the advantages that entails.


Embed Tax Expenditures in the Budget ProcessEmbed Tax Expenditures in the Budget Process List all tax expenditures by functional category List all tax expenditures by functional category Provide estimates of forgone revenueProvide estimates of forgone revenue List tax expenditures in order of sizeList tax expenditures in order of size Provide the incidence of tax expenditures by Provide the incidence of tax expenditures by

income classincome class Provide information on the incidence of Provide information on the incidence of

personal tax expenditures by age cohortpersonal tax expenditures by age cohort Subject to same performance and evaluation Subject to same performance and evaluation

process as direct spendingprocess as direct spending Make tax expenditures subject to departmental Make tax expenditures subject to departmental

spending limitsspending limits List entities that benefit from tax expenditures List entities that benefit from tax expenditures

and the amountand the amount


Good LuckGood Luck

Documents

Social Democratic Perspective 1 Tax Reform: A Social Democratic Perspective