Taxation and the middle class

[ijmorlan]

As for block grants, are you proposing that each province/territory should get $x per resident, regardless of its economic situation? If yes, then the rick provinces would love this, but the less well-off ones would suffer. This might be simpler, but it would increase inequality. Transfer payments are designed to reduce inequality, and they have been doing so since 1867.

Remember that well-off provinces are that way because they have well-off people with big incomes in them. Those people pay a much higher fraction of their income to the federal government in income tax. Same for corporations. So, on net (income tax minus block grants), rich provinces will pay into the system while poor provinces will receive.

Keep in mind that the present system isn’t really a system. I keep seeing articles about provinces complaining that they used to be a have province but now are a need province and can we please re-negotiate the formula? And I’ve never seen an article that actually explained the formula. As far as I can tell there is no formula, just a bunch of province-specific rules that need to be re-negotiated every time the status of various provinces changes.

Also, as with guaranteed income, OAS, and other payments, it’s important the system be universal in order to avoid perverse incentives where increasing income, for example by getting a better job, doesn’t actually significantly increase ones income due to losing the government payment.

Block grants might not be absolute best way to handle equalization, but definitely and for sure the equalization formula should not mention individual provinces, nor should it have carefully-crafted thresholds and criteria chosen to identify individual provinces without naming them.