Dion's carbon tax + tax reduction of $15 B

[Thunderball]

This is the worst idea I have ever heard, and it makes me ashamed that Dion is educated, yet comes up with this crap.

This is an economy killer... and many posters have already done a great job of illustrating why, but I'll give it a shot too and keep it in very simple terms.

How to Ruin an Economy, By Stephane Dion:
Income Taxes go down = Good
Need for Efficiency = Good
Potential Income to Green Initiatives = Good
Polluters get hit with tax = Good
Polluters pass hit to consumer = Bad
New Tax for Consumers = Bad
Cost of finished goods goes up = Bad
Cost of Rent goes up = Bad
Cost of Fuel goes up = Bad
Cost of Heat goes up = Bad
Cost of other Utilities go up = Bad
Cost of Transportation goes up = Bad
Cost of Construction goes up = Bad
Cost of Fruit and Vegetables goes up = Bad
Cost of other grocieries go up = Bad
Cost of Living goes up = Bad
Cost of Construction + Transportation = Reduction in Industry (Bad)
Reduction in Industry = Decrease in Employment (Bad)
Decrease in Employment = Less Discretionary Spending, Lower Standard of Living, Recession and Less Taxable Income (All Bad)
Less Discretionary Spending = Hit on Retail/Service Sector (Bad)
Hit on Retail/Service Sector = Decrease in Employment in Largest Sector(Bad)
Lower Standard of Living = Bad
Recession = Bad
Less Taxable Income = Less Money for Green Initiatives (Bad)

Anyone who says otherwise simply isn't paying attention to economics here.

[old-fart]

Originally Posted by Slava

Don't worry about my understanding here; but thanks for your concern!

I understand fully that increased taxes mean increased prices. But the other side of the coin is that the consumer does have increased disposable income. There are also a large number of businesses and companies that are not going to be taxed more heavily; these just happen to be the companies that are more environmentally friendly and more attractive as both investments and purchases as a result.

Could you please list, oh I don't know, 5 companies that do not require any energy to exist. Just 5 will do to prove your point that there are some companies that will not be taxed more heavily.

Let me see if I can think of some.... hmmm.... maybe an eco-tourism company? Nope, they still have fuel to burn, lights to light, advertising to purchase, etc. Maybe the hutterites... nope, they use fuel and electricity too. Ah... the Amish! What is it that they produce that can be sold to the general public?

What are these magic companies that don't need any energy to produce whatever it is they produce, or don't require any services from companies that do require energy?

Maybe a 14th century blacksmith? But... he does burn stuff that produces carbon so....

[octothorp]

My biggest concern (and I haven't heard this mentioned yet so maybe someone can clarify it) is that it sounds as though the tax is going to be limited to goods or services produced in Canada. If a Canadian company is struggling to compete with foreign competitors and the Canadian company is suddenly hit with a tax that the foreign manufacturer doesn't have, then clearly this hurts the Canadian business and forces them to take a lower profit-margin, or raise prices and lose sales.

I'm also concerned about the opportunity for price gouging: If a business's costs go up .5% as a result of this tax, and they raise their prices 2% and blame it on the government.

[old-fart]

Originally Posted by octothorp

My biggest concern (and I haven't heard this mentioned yet so maybe someone can clarify it) is that it sounds as though the tax is going to be limited to goods or services produced in Canada. If a Canadian company is struggling to compete with foreign competitors and the Canadian company is suddenly hit with a tax that the foreign manufacturer doesn't have, then clearly this hurts the Canadian business and forces them to take a lower profit-margin, or raise prices and lose sales.

I'm also concerned about the opportunity for price gouging: If a business's costs go up .5% as a result of this tax, and they raise their prices 2% and blame it on the government.

I believe you are correct on both counts. Foreign companies will not be as exposed to the tax unless Dion wants to slap an import tax on things based on what he believes is their carbon footprint. Think of the government jobs that would take to track!

Of course companies will gouge, if they think they can get away with it. How many companies that had included GST in their prices lowered their prices when the GST dropped by 2%? I can't think of a single one...

[Resolute 14]

Nep Ii.

[Bobblehead]

In a competitive market companies can't gouge unless there is collusion - if they raise by 2% and their competition only raises the .5% then they will be 1.5% more expensive and lose customers to the cheaper alternative. If it is a monopolistic situation then they will do what is best for their bottom line (MR=MC)

[Shazam]

Originally Posted by Bobblehead

In a competitive market companies can't gouge unless there is collusion - if they raise by 2% and their competition only raises the .5% then they will be 1.5% more expensive and lose customers to the cheaper alternative. If it is a monopolistic situation then they will do what is best for their bottom line (MR=MC)

Of course they can gouge without collusion. All that needs to happen is one company raises prices and the rest follow suit. No collusion, yet higher prices.

[MelBridgeman]

Originally Posted by Bobblehead

In a competitive market companies can't gouge unless there is collusion - if they raise by 2% and their competition only raises the .5% then they will be 1.5% more expensive and lose customers to the cheaper alternative. If it is a monopolistic situation then they will do what is best for their bottom line (MR=MC)

Textbook statement.
In reality it doesn't seem to work that way.
Just look at the competing gas stations on four corners

[Metro Gnome]

Originally Posted by MelBridgeman

Textbook statement.
In reality it doesn't seem to work that way.
Just look at the competing gas stations on four corners

Gas stations have really, really narrow profit margins. In addition, the demand for gas is so constantly high as to be relatively immune to supply/demand price curves.

Most market/commodities don't operate in that fashion.

[Bobblehead]

Originally Posted by Shazam

Of course they can gouge without collusion. All that needs to happen is one company raises prices and the rest follow suit. No collusion, yet higher prices.

Sure. If they all just go along with it.

But why should they if one can be just a little bit cheaper than all the rest and steal a bunch of business from their competitors? (all other factors being equal).

If you see 4 gas stations on 4 corners, they usually all have the same price. If Station A goes 1 cent/litre lower than B, C & D then cars who would have gone to B/C/D now go to A. A doesn't make as much per litre, but sells many more liters. This would force the competing stations to match station A, or lose their customers.

Of course in real life it is much more complicated - people often don't act "rational" (they always go to station B because their daddy always went to station B, they have frequent buyer card, get airmiles from, will never go to station D ever since they got bad service, yadda, yadda) - but in the long run that is how markets react.

If this initiative truly is revenue neutral, then it will be shifting the tax burden from an income tax to a consumption tax, and generally speaking, consumption taxes are more "efficient". Additionally, you will be forcing carbon producers to include the cost of the carbon they are producing into their balance sheet; that is "internalizing an externality", and is generally seen as beneficial since it reduces the burden off the general public and makes the ones who benefit from the action accountable for the action.

So, in theory, the ideas are sound. In practice it all depends upon the very valid concerns already raised - how to account for imported goods, any relief for exports, cost of implementation and administration, and a thousand other real life issues that need to be evaluated, many of which may be problematic enough to sink the idea.


Edit: and Mel, if you recognize that as a textbook statement, then you will also recognize that gas stations on all 4 corners are not in perfect competition. Monopolistic competition or oligopoly may be better models. but you need to understand the textbook answers before you can make them more complicated.

[Shazam]

Goods are priced on what the market will bear. If the market will bear $2 gas, then everybody's going to charge $2. Why would a competitor charge less, especially for such a fungible resource (everything else being equal)?

[Bobblehead]

Originally Posted by Shazam

Goods are priced on what the market will bear. If the market will bear $2 gas, then everybody's going to charge $2. Why would a competitor charge less, especially for such a fungible resource (everything else being equal)?

Because if you can charge a little bit less and gain enough EXTRA business so that your net profit increases, that is what you will do.

[Flames in 07]

Originally Posted by Bobblehead

In a competitive market companies can't gouge unless there is collusion - if they raise by 2% and their competition only raises the .5% then they will be 1.5% more expensive and lose customers to the cheaper alternative. If it is a monopolistic situation then they will do what is best for their bottom line (MR=MC)

That may read well in a text book, but very few things that are a textbook definition of competitive. There are barriers to starting large energy producing companies, capital being the second largest and skill sets being the largest.

The 2 large impacts I see here is deterring investment in Canada and hiking up the cost of energy and everything that needs energy ... ie everything.

The personal tax reduction is a populist move that people who don't understand economics will eat up and think it's the big old companies that are being harmed by the tax.

[Flames in 07]

Originally Posted by Bobblehead

Because if you can charge a little bit less and gain enough EXTRA business so that your net profit increases, that is what you will do.

Not if you thought you plan to be in business for more than a week.

[Devils'Advocate]

I don't think this a very smart move by Dion. Now, I fully expected everyone here to hate it given that Dion could be for giving food to starving orphans and everyone here would be up in arms. But my concern is that the implications of this tax are so complicated that 6-pack drinking, football-watchin' Joe isn't going to understand this thing. I can't see myself knocking on peoples doors and explaining this in 2 minutes (not that I've ever knocked on doors for the Liberals).

If people don't understand something, they reject it as evil. The fear of change is amplified in small-c conservative Canada. IMHO, this isn't going to fly well in Ontario/Quebec. I don't think Stephane actually expected to get votes in Alberta from this plan.

[killer_carlson]

This is a terrible idea. I don't have time to get into the debate, but the reasons have been raised in this thread already.

Having said that, it is possible that Dion could become the next PM and implement this. My question(s) to the room is:

Will Alberta have a seperation referendum in response?
Is there the infrastructure in place from a credible group to organize one?

Joe six pack might sit there and say he wants to seperate, but until someone credible steps up to organize one, it isn't going to happen. I think it has to happen from the provincial conservatives and I don't see Ed doing it.

[Caged Great]

First, I am a liberal and from my view, I don't think that this idea goes quite far enough.

What Dion should do on top of this shift, is make it easier for business to convert to more green alternatives by giving them tax breaks on the alternatives. This would fuel more development of energy efficient and green technologies instead of the ones we have in place already in our industry. This would help to penalize the "bad" non green behaviour, while rewarding the "good" green behaviour.

This would help to lower the financial impact of the hit to consumers, and would benefit the industry as well (If I'm an industry who is out doing all the competition in regards to green, I could advertise that and get a lot of people to purchase my products instead of the competition)

As I see it, this is an incomplete idea and will probably not be made into law.

That said, with all the uproar that the conservatives are doing, What is their plan. Oh, that's right, do nothing. I forgot....

[ernie]

Geez even the NDP are shaking their heads on this one and saying this plan of Dion's will end up being way to big a financial burden on people and way too much tax.

Yep the NDP saying it's just too much tax and will kill the economy.

[Resolute 14]

Originally Posted by Devils'Advocate

I don't think this a very smart move by Dion. Now, I fully expected everyone here to hate it given that Dion could be for giving food to starving orphans and everyone here would be up in arms. But my concern is that the implications of this tax are so complicated that 6-pack drinking, football-watchin' Joe isn't going to understand this thing. I can't see myself knocking on peoples doors and explaining this in 2 minutes (not that I've ever knocked on doors for the Liberals).

If people don't understand something, they reject it as evil. The fear of change is amplified in small-c conservative Canada. IMHO, this isn't going to fly well in Ontario/Quebec. I don't think Stephane actually expected to get votes in Alberta from this plan.

Yup. Anyone who opposes this is too stupid to understand it.

I guess we can't all be as perfect and intelligent as you, eh?


Though you unwittingly (or, perhaps deliberately, given your obvious intelligence) showed why the Liberals are completely unfit to govern this nation. "I don't think Stephane actually expected to get votes in Alberta from this plan."

Any party that actively works to offend and alienate one region of the country for the benefit of another has no right to govern.

But what do I know? I'm too stupid to understand.

[Boblobla]

Originally Posted by Devils'Advocate

I don't think this a very smart move by Dion. Now, I fully expected everyone here to hate it given that Dion could be for giving food to starving orphans and everyone here would be up in arms. But my concern is that the implications of this tax are so complicated that 6-pack drinking, football-watchin' Joe isn't going to understand this thing. I can't see myself knocking on peoples doors and explaining this in 2 minutes (not that I've ever knocked on doors for the Liberals).

If people don't understand something, they reject it as evil. The fear of change is amplified in small-c conservative Canada. IMHO, this isn't going to fly well in Ontario/Quebec. I don't think Stephane actually expected to get votes in Alberta from this plan.

I have found the best way to discuss things is to not really make a point, insult people, and make rampant generalizations as well.