What Leonhardt Leaves Out
By David Henderson
In a positive article, almost a puff piece, on Bruce Bartlett, New York Times reporter David Leonhardt highlights Bruce’s advocacy of a value-added tax for the United States. Leonhardt points out that many countries have such a tax and mentions Canada specifically. My guess is that Bruce was more careful than Leonhardt and probably did not claim that Canada has a VAT, because it doesn’t. Rather, Canada has a federal GST, a goods and services tax.
You could argue that I’m quibbling over the difference between a GST and a VAT. And there would be something to that argument.
But here’s what’s not a quibble: what happened to the political fortunes of the Canadian government that imposed that tax, something that Leonhardt doesn’t mention. Brian Mulroney, the Canadian prime minister at the time, imposed the tax at an initial whopping 7%. It’s true that it replaced a narrower hidden 13.5% tax on manufacturing and that it was designed to be revenue-neutral. But precisely because the GST was visible, it generated enormous opposition. The Liberal Party made repeal of the GST one of its main issues in the 1993 election. By then, Mulroney’s party, the Progressive Conservatives, had kicked him out and replaced him with Kim Campbell. Granted that Campbell ran one of the most incompetent campaigns in Canadian history and granted that there was a recession on at the time. But do you care to guess what happened to the number of seats in Parliament that the Progressive Conservatives won in that election? Let me give you a hint. They started with 169 out of 295 seats. And they ended with a number that can be counted on the fingers of one hand. To be precise, they ended with 2 seats, a 99% drop, and, a few years later, the Progressive Conservative Party disappeared via merger.
Whatever the merits of a VAT, the party that imposes it risks losing in the next election. Oh, and did the Liberal Party end up abolishing the GST? No, it broke that promise. Instead, the Prime Minister who cut it in stages from 7% to 5% is the current PM, Stephen Harper.
Note the irony. One reason conservatives advocate visible taxes rather than less-visible taxes is so that voters have a feel for the magnitude of the tax. But precisely because that’s true, they’ll punish the party that imposes it.
Update: I probably overstated in saying that Mulroney was kicked out. Let’s just say that his Party was glad to see him go. A Gallup Poll in 1992 showed him with an 11% approval rating.