Do Taxes Affect Behaviour?

By Eric Rempel

Today, because we are in election season and the advisability of a carbon tax is in the air, we continue our examination of how such a tax might affect us.

Do taxes affect behaviour? Of course they do. We all know of cases where it has. It may even have affected our behaviour. We are all aware of individuals who have considered overtime work, and have declined it because “the extra money earned will simply result in additional taxes.” We are aware of individuals who have rejected or deferred improvements to their house because of the increased taxes they would expect to pay. We feel we need to pay good money to accountants for the sole purpose of reducing the taxes we pay.

Corporations consider the tax structure of a local before they locate their business. The wealthy, I hear, find ways of depositing their wealth off-shore in order to avoid taxes.

The examples I have just given are of cases where the tax seems to result in what, in reality is a bad decision. There are good reasons for refusing to work overtime, but surely a tax that discourages people from taking overtime work can’t be considered a good tax. There are good reasons why we should defer improvements to our house, but surely a tax that discourages people from improving their house is not a good tax. Accountants serve business well when they help the business identify ways of improving the efficiency of the business, but when the tax system rewards accountants for time spent looking for ways to reduce taxes, surely there is something wrong with the tax system.

We can agree that governments need money in order to function. Can we also agree that when it becomes possible for corporations to manipulate governments so they don’t have to pay the very tax governments need in order to function, there is something wrong with the tax system.

So what should we tax? Surely we can agree that we should tax activities that are not good for us. Which activities are we talking about? In a word, unsustainable activities. If the activity is the extraction of a finite resource from the planet, a resource that, once it is gone, it is gone, this activity should be taxed. Such activity should be discouraged. Ironically today, extractive industry is encouraged and rewarded by many

government policies.

There are those today who say that a carbon tax is killing and will kill more jobs. It is understandable that people are saying this. Just consider the number of Canadians who have migrated to Alberta and found jobs in the Oil Patch. But before we applaud the resource extractive industry for creating these jobs, we need to consider why these migrants became unemployed in the first place. Many became unemployed because the resources they had been extracting are now depleted. Consider all the jobs lost because to the collapse of the cod fishery. Is the solution to the unemployment resulting from the collapse of one exhaustible resource to simply move on to the next exhaustible resource? Resource extraction will generate jobs, but at what long term price?

A few weeks ago we discussed the effect of mechanization and automation on jobs in this column. We said that our focus on increasing human productivity without considering the actual efficiency of a mechanical innovation has resulted in the loss of many jobs. Jobs are being lost due to mechanization and automation every day. Next week we will discuss how taxation affects and can affect mechanization and automation.