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NDP, Liberals battle over best plan to squeeze the rich

They have two competing ways to soak the rich and the Liberals and NDP are starting to fight over which one is better.

Both parties say they'll make Canada more fair by putting more of the tax burden onto those with more money. They believe that's a popular idea that will strike a chord with many voters, who not only feel they need a break, but that others are getting off lightly.

As Liberal Leader Justin Trudeau put it in a speech to the Canadian Club in Toronto, "the middle class and those Canadians working hard to join the middle class are increasingly convinced that what little growth we've had has benefited somebody else."

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That's intended as a criticism of Stephen Harper's Conservative government, an accusation that his policies benefit the affluent more than ordinary people. But it comes with an element of competition with Thomas Mulcair's NDP. Now the two opposition parties are fighting over whose plan to shift the tax burden to the well-off makes for better economics.

The Liberals would raise personal income taxes on earnings over $200,000. The NDP proposes an increase in corporate taxes, although it hasn't yet said how much.

Both will prod the other for failing to do it their way. The Liberals think a lot of NDP voters would like to see higher taxes on the so-called 1 per cent, but the New Democrats wanted to make a clear pledge not to increase personal income taxes at all to reassure voters. The NDP will blame the Liberals for giving corporations an easy ride, but the Liberals want to claim to be a pro-business party.

So in Toronto on Monday, part of Mr. Trudeau's task was to argue why the Liberal version is better: raising corporate taxes will discourage investment, and hurt economic growth.

"The reasoning is simple," he said. "At the heart of job creation and economic growth is investment. I believe in free trade, and in foreign investment. I am also a believer in a robust business culture – one that encourages and rewards investment and growth. Competitive corporate tax rates help make all that happen."

But the NDP's finance critic, Nathan Cullen, said the Liberals' faith in lower taxes as a boon for growth doesn't hold up to scrutiny. The burden of Canadian taxes has shifted significantly away from corporations onto individuals, he noted, while inequality grew. And while the Liberals argued through the 1990s that lowering corporate taxes would increase investment and productivity, when corporate taxes were cut, investment and productivity didn't surge.

"Trying more of the same, expecting different results, is by definition insane," he said.

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Most economists still think the NDP is wrong, however. They view corporate taxes as more of a disincentive to investment, and bad for growth.

"Corporate taxes are the most growth-retarding taxes we've ever invented," said Chris Ragan, a McGill University economics professor. They scare off investment, hurting jobs, so workers bear most of the burden. It's true that investment and productivity didn't take off when Canada cut corporate taxes, but there were other factors, like a fiscal crisis, he said.

That's the classical economic view, said Don Drummond, Matthews Fellow in global public policy at Queen's University. But he agreed corporate tax cuts haven't always had the expected impact. And raising the tax rate for the top bracket by four percentage points, as the Liberals propose, would mean pretty high marginal tax rates in Quebec and Ontario. Raising corporate taxes is more likely to hurt growth, he said, but it's "not that black and white."

For voters, of course, the question of which party has the better plan will have a lot to do with what those higher taxes on the "rich" will pay for. In the case of the Liberals, it will go to cut the tax rate on the middle bracket, which means income from $44,700 to $89,401. The NDP would use it to pay for a national $15-a-day daycare plan.

But make no mistake, the Liberals and the NDP aren't simply coming up with ways to pay for other promises. Taxes hikes are usually unpopular, but shifting the burden to the affluent is part of what they're selling, and there's a competition over whose plan makes more economic sense.

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About the Author
Chief political writer

Campbell Clark has been a political writer in The Globe and Mail’s Ottawa bureau since 2000. Before that he worked for The Montreal Gazette and the National Post. He writes about Canadian politics and foreign policy. More

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