Comment 102323

By kevlahan (registered) | Posted June 11, 2014 at 10:02:30 in reply to Comment 102316

It is also important to remember that the Ontario government, like most other OECD governments since the 1980s, has made a deliberate choice to reduce taxes (especially on the wealthy) and instead borrow money (from the wealthy).

Borrowing from the wealthy instead of taxing the wealthy is a political choice with significant consequences for society.

The government can choose to raise revenue from taxes or borrowing, but because the wealthiest 20% own 88% of the wealth (and the top 1% own 36% of wealth) [US figures, although Canada and the rest of the OECD shows similar shares] this choice is doubly beneficial to the wealthy and doubly harmful to the bottom 80%: the wealthy pay less taxes and they are paid interest on money they loan to the government. And this interest is, of course paid from taxes, of which the wealthiest are now paying a smaller share!

The balance between government borrowing and taxation is a political decision and the political decisions made since the 1980s have clearly benefitted the wealthiest at the expense of the majority.

In addition, the choice to target low inflation rates also helps creditors and removes one of the most efficient (and relatively painless) ways of eliminating the debt: inflation naturally decreases the debt to GDP ratio, and it doesn't require particularly high inflation rates. This is the way OECD countries eliminated their massive post-WWII debts (including Germany, which ironically is now one of the toughest hawks on very low inflation targets).

In this context, the claim that the only solution to high debt levels is to cut spending is indeed disingenuous!

McMaster's Michael Veall has done a lot of interesting research on this (although focusing on income rather than wealth inequality): https://www.economics.mcmaster.ca/facult...

Comment edited by kevlahan on 2014-06-11 10:17:13

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