The Green Shift that might have been

The instant, universal wisdom after the election — the more instant, the more universal, as always — was that the Green Shift was second only to Stephane Dion as a Liberal vote-killer.

Dion’s failings as leader are not in dispute here. And the Green Shift, as written, plainly failed to catch fire. You can’t argue with a popular vote of 26%

But if the argument is that any plan that involves shifting the burden of taxation from income taxes to carbon taxes is unsaleable, that has not been established. 

Why didn’t this Green Shift work, this time? A number of factors came into play:

1) Dion. The best product in the world still needs a good salesman. A complicated new product needs a really good salesman. Dion did not sell this at all well.

2) Timing. The policy was put forward at a time of skyrocketing oil prices. That doesn’t negate its usefulness as policy, as I’ve explained elsewhere, but it did make it a harder sell with the public. 

The credit crisis, erupting in the middle of the election campaign, made matters worse, adding seeming weight to the Conservatives’ message that now was not the time for “risky” experiments. Again, there wasn’t much substantive validity to this — not least since the Conservatives’ own cap-and-trade plan is just as costly, and twice as risky — but it sounded persuasive.

3) The NDP. Had the Tories been the only one demagoguing the issue, pretending that a carbon tax would be added to consumer prices but the costs of complying with cap-and-trade would not, the Liberals might have been able to make their case. But with the NDP as the Conservatives’ wingmen, it was no contest.

4) Most important, they botched the specifics. They lost their nerve; they tried to make the plan do too much at one go; they listened to the old pros who told them to use the money to pay off traditional Liberal constituencies, rather than just cut taxes. In sum, it wasn’t a tax shift, or not enough of one.

First, it wasn’t “revenue neutral,” except in the apparent Liberal definition of the term — as “we spent every dollar we took in.” Some $14-billion of the four-year, $40-billion revenue yield of the carbon tax would have been given back, not as tax cuts, but as tax credits — spending by another name. This gave just enough truth to the Tory charge that the plan was a revenue grab to make it stick.

Second, so far as they did cut taxes, they chose to cut from the bottom, rather than the top. Because they applied the tax cut at the fattest part of the base, they could only afford a one percentage point cut in tax rates — and none at all to the top bracket: so small as do little good economically, and none at all politically. Indeed, the tax cuts were forgotten almost as soon as they were announced.

Had the Liberals produced a real tax shift, one with deep, headline-grabbing cuts in income tax rates (by my calculations, the plan would have yielded enough revenues by the fourth year to cut the top rate of personal income tax to 20% or less), it would have been impossible for the Tories to paint it as just another tax grab — especially if the Liberals had sold the plan as a tax cut, financed by a carbon levy, rather than the other way around.

As it was, the plan was undermined by a deep, and arguably fatal, internal contradiction. On the one hand, the Liberals were asking us to save the world, or rather to set a good example to other nations in that regard, since Canada’s emissions, at 2% of the global total, are too small to make much difference on their own. That’s a pretty abstract, altruistic idea. It asks us to make choices based not on immediate calculations of self-interest, but on a vision of Canada’s role in the world.

But then, on the other side of the ledger, the Liberals invited us to be completely self-interested: you can save the world, and it won’t cost you a dime! Here, use our handy calculator to see how much your family will save! This played into the Tories’ hands. If the only basis on which voters were to assess the plan was whether they personally profited from it, the Tories could point to all the tangible, real-world things that would cost more immediately, while the Grits could only talk about the savings that eventually, maybe, might materialize on their income tax form. 

If the carbon tax was about a bold, world-changing vision of Canada, it should have been matched by an equally visionary approach on the tax cut side. It should have asked voters to think, not about whether my family gains or loses a few dollars in the short run, but about transforming the Canadian economy — from today’s high-tax, low-investment plodder into a low-tax, high-investment, high-productivity “tiger,” like Ireland.

I know, I know: you can’t sell “tax cuts for the rich.” But the Liberal plan was a tax cut for the rich: the rich would have gained just as surely as the poor and middle class from those cuts in the bottom rates. But, unlike cuts in top marginal rates, it did not give them any incentives to alter their behaviour. As written, the plan cut taxes on the income they had already earned, rather than on the next dollar earned — on the income earned “at the margin,” on new investments in particular.

I don’t think it’s true that every voter measures every issue according to whether it benefits them personally. A Green Shift that promised to make the whole country richer — not in an immediate cash sense, but as an investment in higher productivity — might well have proved popular, and might yet in time.