Boutique tax credits: politically popular, but not the best policy, say experts
Tax credits for volunteer firefighters, tradespeople, bus riders and lots of credits for parents – it seems the Conservative party has created a specific tax credit for almost everyone. Even the Liberal party has gotten on the tax credit train, promising a credit for teachers who purchase school supplies.
Sounds great, right? But is it good policy?
Generally speaking, experts say no. “I think most people who study tax policy tend to look at these things very skeptically,” said Allan Maslove, distinguished research professor emeritus at Carleton University’s School of Public Policy and Administration.
There are several problems with small, targeted tax credits, he said. First, they make the tax system harder to manage. “When you start cluttering up the tax system with 10, 15, 20 of these things, the system becomes much more complicated to administer,” he said.
Not only that, but when you have enough tax credits, you start taking revenue away from the government, he said. One tax credit might not cost much, but by adding several together, you start getting into hundreds of millions of lost tax revenue, he said. In order to avoid a revenue shortfall, that revenue then needs to be made up elsewhere, perhaps through higher tax rates somewhere else.
One way Maslove evaluates the usefulness of a tax credit is to ask, “If this thing were a direct spending program, would we do it? Would governments do it?”
“Would you ever offer cheques to parents of rich kids who enroll their children in music lessons and not offer it to parents of poor kids? You can’t imagine that happening under a direct program, but that’s exactly what happens under the tax program,” he said.
Finally, said Maslove, the evidence is mixed on whether they work: whether offering a tax credit on home renovation actually encourages more home renovation, for example.
According to Maslove, the public transit tax credit in particular is problematic. “There’s very little evidence that that has any net effect on whether people take the bus or drive their own cars to work.”
So, if they don’t work, cost the government revenue and are sometimes unfair, why do politicians embrace boutique tax credits?
It’s pretty straight-forward, according to former Conservative strategist Tim Powers.
“They’re targeted vote-getting initiatives,” he said.
“They’ll appeal to different groups of people and the hope is that these people in return for tax breaks will give the political parties the support they’re looking for.”
They’re popular among politicians because they’re seen to work, he said. “I’m sure in and of themselves they’re not responsible for all of the recent political success the Conservatives have, but I think they have political value, otherwise the government, the Conservatives and others wouldn’t continue to try and use them.”
When asked about his support for targeted tax credits, Harper defended his government’s approach. “These are a real help, not just to seniors but to students, to families, to people who use public transit, these are good things for Canadians,” he said. “I know the other guys don’t like them. We’re not going to let them take them away. We’re going to keep fighting. We’re going to keep these tax credits for Canadians.”
Of course, some of the other guys – the Liberals – do seem to like boutique tax credits, since Trudeau announced his own for teachers. “In just about every job that people do across the country, they are allowed to claim work expenses as tax benefits. Why should teachers be different from anyone else?” he said when asked about boutique tax credits. “It’s about time we recognized what teachers offer to, not just our students, but our future and that’s what this is about.”
Only the NDP does not appear to have embraced the boutique tax credit – though Mulcair wouldn’t necessarily repeal those created under Harper. “What we learned this year from the Parliamentary Budget Officer is that the Conservatives have not been measuring those tax credits. So before you can have a definitive opinion on whether or not you should keep them, you have to know whether they’re producing the desired effect,” he said.
“So we would take the time to look at whether or not these are indeed producing the desired effect. It’s very difficult on any specific one of those to have a more definite answer than that because they haven’t been measuring it.”