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Archive for the ‘Canada’ Category

I wrote yesterday about a handful of strange legal developments in Canada.

In a display of balance, however, I noted in my conclusion that Canada in recent decades has been “very sensible” with regard to economic issues (spending restraintwelfare reformcorporate tax reform, bank bailoutsregulatory budgeting, the tax treatment of savingschool choice, and privatization of air traffic control).

But “very sensible” is not the same as “totally sensible.” Especially not if you count recent years.

The nation’s current top politician, Justin Trudeau (a.k.a., Prime Minister Zoolander), increased the top tax rate from 29 percent to 33 percent after taking office in late 2015.

It appears, though, that he wasn’t aware of a concept known as the Laffer Curve (or, like some folks on the left, maybe he simply didn’t care).

In the real world, however, it turns out that increasing tax rates is not the same as increasing tax revenue.

Here are some excerpts from a story in the Globe and Mail.

The Liberal government’s tax on Canada’s top 1 per cent failed to produce the promised billions in new revenue in its first year, as high-income earners actually paid $4.6-billion less in federal taxes. …The latest available tax records show that revenue from Canadians earning about $140,000 or more – which had previously been the fourth and highest tax bracket – dropped by $4.6-billion in 2016, the first full year that the Liberal tax changes were in effect. Further, 30,340 fewer Canadians reported incomes in that range for 2016 compared with the year before. …The new top bracket with a 33-per-cent tax rate was predicted to raise about $3-billion a year in new revenue… Critics of the Liberal plan say the CRA’s 2016 numbers justify their concern that a new top tax bracket hurts Canadian efforts to boost competitiveness and attract top talent.

It’s quite possible, as noted in the article, that some of the foregone revenue might be the result of one-time changes, such as upper-income taxpayers shifting income from 2016 to 2015 (rich people do have considerable control over the timing, level, and composition of their income).

A report from Global News reviews a report about the degree to which revenues dropped for transitory reasons.

The Liberal government’s 2016 tax hike on Canada’s top one per cent not only failed to yield the promised billions, but resulted in a net revenue loss for government coffers… After adjusting for economic changes and one-time factors, the paper estimates, based on 2016 tax data, that the Liberals’ new tax bracket for top earners creates $1.2 billion in new revenue for the federal government but a $1.3 billion loss for provincial governments. …Finance Minister Bill Morneau’s office, however, has maintained that the revenue drop for 2016 was a one-off event. …But an analysis of the data that adjusts for the impact of the dividends maneuver and economic factors still shows that the tax hike would have fallen far short of the hype… Studies have shown that top earners are more likely than lower-income taxpayers to react to tax increases by reducing their taxable income. This may be because the wealthy have access to more sophisticated tax advice, are more easily able to shift assets to lower-tax jurisdictions or can afford to simply decide to work less given that they get to keep less of their money.

Much of the data in this story came from an analysis by the C.D. Howe Institute.

Here’s the key chart from that study, which disentangles the one-off changes and permanent changes caused by the higher tax rate.

The bottom line is that the experts at the C.D. Howe Institute believe that the central government eventually will collect more revenue from the higher tax rate, but:

  1. The revenue will be less than projected by static revenue estimates because of permanently lower levels of taxable income.
  2. The added revenue for the central government is more than offset by lower tax receipts for subnational levels of government.

In other words, Trudeau’s tax hike was a big mistake. The only tangible results are that the private sector is now smaller and the country is less competitive.

For what it’s worth, I view the lack of additional tax revenue as a silver lining to an otherwise dark cloud. Maybe, just maybe, this will put a damper on some of Trudeau’s irresponsible plans for more spending.

P.S. For those interested in Canadian fiscal policy, I shared some research last year about the implications of provincial changes in tax policy.

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When I think of over-bearing governments with myopic enforcement of silly rules, I obviously think of the United States, especially the IRS, EEOC, FDA, and EPA.

And I also think of Germany, Japan, and other straight-laced societies.

But I don’t think of Canada. After all, that’s the home of Dudley Do-Right. Canadians are too nice to do dumb things!

However, I shouldn’t be basing my views on a cartoon from my childhood. It seems that Canadians are quite capable of bizarre behavior. At least when you look at their legal system.

Let’s review three additional examples.

I’ve written about some of the mistakes that American states (California and Colorado, for instance) have made when legalizing marijuana. Well, there are similar mistakes in Canada according to the Washington Post.

When the government launched Canada’s official recreational-pot market on Oct. 17, it was banking on the idea that many users would prefer to buy legally and that the black market would quickly begin to fade. …things aren’t going as expected. …a month after legalization, more than a third of Canadian cannabis users said they were still buying from their regular dealers and hadn’t even tried the legal system. Five illegal sellers in Quebec told The Washington Post their sales are slightly up.

It turns out that the legal system is a mess of harsh regulation.

In 2015, when the government first committed to legalization, many of them planned to apply to open private shops. “All of us thought, ‘Okay . . . I’m going to be able to come out of the shadows and I’m going to be able to pay taxes,’ ” David said. “As time went on, it became clear that’s not what they were after.” In Quebec and several other Canadian provinces, all cannabis stores are government-run, leaving no path to legality… said Lewis Koski, former director of the Colorado Marijuana Enforcement Division and now a consultant on legalization. “I can’t think of a state here in the U.S. that has a government-control model similar to . . . Canada’s.” Even in provinces that do allow private shops or dispensaries, including Alberta, Saskatchewan and Manitoba, small businesses face high barriers. It costs almost $5,000 just to apply for a license, and if approved, $23,000 each year thereafter in regulatory fees, with provinces often adding their own charges.

Let’s now look at a government-enforced Canadian cartel.

The maple syrup farmers of Québec have been saddled with compulsory membership to the Federation of Québec Maple Syrup Producers (FPAQ, according to the native French abbreviation) since 1990. The Federation holds monopoly rights over all maple syrup produced in the province, controlling wholesale distribution and prices. Anyone who dares to sell more than five litres of their boiled tree sap on their own farm or to local grocery stores faces a prison sentence and a fine of hundreds of thousands of dollars. …Angele Grenier and her husband, decades-long syrup farmers, have been smuggling their contraband syrup to the neighboring province of New Brunswick. In the dark of the night, they load barrels onto trucks and sneak across the province border to market freedom. For this terrible black market act of choosing their own customers and prices, Angele is one of Canada’s most wanted women. She has appealed the charges brought against her by the FPAQ, and her case is being taken up by the Supreme Court.

Maybe Canadian syrup smugglers can learn lessons from Norwegian butter smugglers?

Last but not least, the Toronto Star reports that Canadian law enforcement is capable of government thuggery.

At about 5 p.m. on May 13, 2009, Kosoian stepped on the down escalator at a subway station in Laval. She was heading to her history class at a university in downtown Montreal. Kosoian had used that same escalator almost every day for four years. She knew that at the front of the escalator, as well as at a spot halfway down, were yellow pictograms that said, “Caution … hold handrail.” She deemed the pictogram nothing more than a warning or recommendation. Besides, the H1N1 virus was making the rounds, and Kosoian considered the handrail a cesspool of microbes. …A police officer…stopped in front of Kosoian on the step below when the escalator had taken her about halfway down. The officer, Fabio Camacho, …ordered her to hold the handrail. Kosoian says she responded: “It’s my right to hold the handrail or not to hold it.” …when Kosoian reached the bottom of the escalator, Camacho and his partner, the officer who initially walked past Kosoian, grabbed her by the arms and took her to a nearby locked room that also contained a jail cell. …Camacho and his partner cuffed Kosoian’s hands behind her back and sat her in a chair. He searched her bag, found her driver’s licence and began writing her two tickets: a $100 fine for not holding the handrail, and a $320 fine for obstructing the work of a police officer.

It’s quite possible that Kosoian was being obnoxious and baiting the cops, but none of that changes the fact that not holding a handrail shouldn’t be a criminal offense.

Do cops in Canada bust into people’s houses to see if mattress tags are still attached (though perhaps only the U.S. is dumb enough to have such a rule)?

Interestingly, this episode from 2009 is now going to the Canadian Supreme Court.

The Laval police force and the transit agency…pressed for the fines to be paid, and Kosoian’s refusal triggered a municipal court hearing in May 2011. In March 2012, Judge Florent Bisson acquitted Kosoian of the tickets… Kosoian…launched a lawsuit against Camacho, the STM and the City of Laval. In August 2015, the Quebec Court dismissed it with a legal tongue lashing. …She appealed and, on Dec. 5, 2017, the Quebec Court of Appeal ruled against her in a 2-1 decision. …Kosoian and her lawyer again appealed, this time to the Supreme Court. …the Supreme Court has only granted about 10 per cent of the 500 or so requests for appeals it receives each year. So Thomas Slade, a lawyer who is not involved in the case, says he was initially surprised when the court agreed to hear Kosoian.

I’m not overflowing with sympathy for Ms. Kosoian, but there’s not much doubt that getting rid of stupid laws is the best way of avoiding this type of mess.

I’ll close with two observations. First, Americans can’t throw stones at our Canadian friends since we live in a glass house.

Second, Canada obviously needs to change some of its silly laws, but I don’t want this to be interpreted as an indictment of the entire country (notwithstanding Prime Minister Zoolander).

In recent decades, Canada has dealt with several issues (spending restraintwelfare reformcorporate tax reform, bank bailoutsregulatory budgeting, the tax treatment of saving, school choice, and privatization of air traffic control) in a very sensible fashion.

P.S. Though a Canadian politician is eligible for the hypocrite-of-the-century award.

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In the past few years, I’ve bolstered the case for lower tax rates by citing country-specific research from Italy, Australia, Germany, Sweden, Israel, Portugal, South Africa, the United States, Denmark, Russia, France, and the United Kingdom.

Now let’s look to the north.

Two Canadian scholars investigated the impact of provincial tax policy changes in Canada. Here are the issues they investigated.

The tax cuts introduced by the provincial government of British Columbia (BC) in 2001 are an important example… The tax reform was introduced in two stages. In an attempt to make the BC’s economy more competitive, the government reduced the corporate income tax (CIT) rate initially by 3.0 percentage points with an additional 1.5 percentage point reduction in 2005. The government also cut the personal income tax (PIT) rate by about 25 percent. …The Canadian provincial governments’ tax policies provide a good natural experiment for the study of the effects of tax rates on growth. …The principal objective of this paper is to investigate the effects of taxation on growth using data from 10 Canadian provinces during 1977-2006. We also explore the relationship between tax rates and total tax revenue. We use the empirical results to assess the revenue and growth rate effects of the 2001 British Columbia’s incentive-based tax cuts.

And here are the headline results.

The results of this paper indicate that higher taxes are associated with lower private investment and slower economic growth. Our analysis suggests that a 10 percentage point cut in the statutory corporate income tax rate is associated with a temporary 1 to 2 percentage point increase in per capita GDP growth rate. Similarly, a 10 percentage point reduction in the top marginal personal income tax rate is related to a temporary one percentage point increase in the growth rate. … The results suggest that the tax cuts can result in significant long-run output gains. In particular, our simulation results indicate that the 4.5 percentage point CIT rate cut will boost the long-run GDP per capita in BC by 18 percent compared to the level that would have prevailed in the absence of the CIT tax cut. …The result indicates that a 10 percentage point reduction in the corporate marginal tax rate is associated with a 5.76 percentage point increase in the private investment to GDP ratio. Similarly, a 10 percentage point cut in the top personal income tax rate is related to a 5.96 percentage point rise in the private investment to GDP ratio.

The authors look specifically at what happened when British Columbia adopted supply-side tax reforms.

…In this section, we attempt to gauge the magnitude of the growth effects of the CIT and PIT rate cuts in BC in 2001… the growth rate effect of the tax cut is temporary, but long-lasting. Figure 2 shows the output with the CIT rate cut relative to the no-tax cut output over the 120 years horizon. Our model indicates that in the long-run per capita output would be 17.6 percent higher with the 4.5 percentage point CIT rate cut. …We have used a similar procedure to calculate the effects of the five percentage point reduction in the PIT rate in BC. …The solid line in Figure 3 shows simulated relative output with the PIT rate cut compared to the output with the base line growth rate of 1.275. Our model indicates that per capita output would be 7.6 percent higher in the long run with the five percentage point PIT rate cut.

Here’s their estimate of the long-run benefits of a lower corporate tax rate.

And here’s what they found when estimating the pro-growth impact of a lower tax rate on households.

In both cases, lower tax rates lead to more economic output.

Which means that lower tax rates result in more taxable income (the core premise of the Laffer Curve).

The amount of tax revenue that a provincial government collects depends on both its tax rates and tax bases. Thus one major concern that policy makers have in cutting tax rates is the implication of tax cuts for government tax receipts. …The true cost of raising a tax rate to taxpayers is not just the direct cost of but also the loss of output caused by changes in taxpayers’ economic decisions. The Marginal Cost of Public Funds (MCF) measures the loss created by the additional distortion in the allocation of resources when an additional dollar of tax revenue is raised through a tax rate increase. …if…government is on the negatively-sloped section of its present value revenue Laffer curve…, a tax rate reduction would increase the present value of the government’s tax revenues.

And the Canadian research determined that, measured by present value, the lower corporate tax rate will increase tax revenue.

…computations indicate that including the growth rate effects substantially raises our view of the MCF for a PIT. Our computations therefore support previous analysis which indicates that it is much more costly to raise revenue through a PIT rate increase than through a sales tax rate increase and that there are potentially large efficiency gains if a province switches from an income tax to a sales tax. When the growth rate effects of the CIT are included in the analysis, …a CIT rate reduction would increase the present value of the government’s tax revenues. A CIT rate cut would make taxpayers better off and the government would have more funds to spend on public services or cut other taxes. Therefore our computations provide strong support for cutting corporate income tax rates.

Needless to say, if faced with the choice between “more funds to spend” and “cut other taxes,” I greatly prefer the latter. Which is why I worry that people learn the wrong lesson when I point out that the rich paid a lot more tax after Reagan lowered the top rate in the 1980s.

The goal is to generate more prosperity for people, not more revenue for government. So if a tax cut produces more revenue, the immediate response should be to drop the rate even further.

But I’m digressing. The point of today’s column is simply to augment my collection of case studies showing that better tax policy produces better economic performance.

P.S. The research from Canada also helps to explain the positive effect of decentralization and federalism. British Columbia had the leeway to adopt supply-side reforms because the central government in Canada is somewhat limited in size and scope. That’s even more true in Switzerland (where we see the best results), and somewhat true about the United States.

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Canada is a surprisingly pro-market country, with relatively sensible policies involving spending restraint, welfare reform, corporate tax reform, bank bailoutsregulatory budgeting, the tax treatment of saving, and privatization of air traffic control.

And we should add education policy to the mix.

There are four comparatively admirable features of Canadian schooling. First, as explained by the Vancouver-based Fraser Institute, the central government has no role.

…the Canadian educational system is much more decentralized than in the United States. One of the starkest illustrations of the different models at work between the two countries, is the fact that Canada has no federal role, no federal ministry or department, and no federal cabinet position for K-12 education at all. …in Canada, this vital aspect of society is under the exclusive control and authority of the provinces. Furthermore, in many provinces the delivery responsibilities are decentralized to local and regional boards of education.

Too bad we can’t say the same in the United States.

Second, Canadian taxpayers don’t spend as much money.

Adjusting for differences in currencies, in 2010 the United States (public and private) spent $11,826 per student on K-12 education. In contrast, the comparable figure for Canada was only $9,774… the United States spent about one-fifth (21%) more per student in 2010 for primary and secondary education, and…that difference arises from the higher level of government spending.

The sad news is that the United States has the ignoble distinction of having the highest level of per-student spending. Yet we certainly don’t get better results.

Especially compared to Canadians, which is the third admirable feature north of the border.

…on most international tests, Canada performs at least as well as, and often much better than, the United States. For example, the OECD administers the Programme for International Student Assessment (PISA), which in 2006 gave U.S. students a science score of 489, compared to Canada’s 534 and the OECD average of 500.

So why is Canada getting better results with less money?

There are probably several answers, but one reason is a Canadian version of school vouchers, which is the fourth positive attribute of the Canadian education system.

Five provinces in Canada make provision for funding qualifying independent schools. These are Quebec and the four western provinces: Manitoba, Saskatchewan, Alberta, and British Columbia. …Funding percentages vary across the five funding provinces. None offer funding toward the purchase or construction of capital assets. Funding is generally calculated as a percentage of the amount given to the local school district for the operational (recurrent) expenses of educating a student. Funding is generally paid directly to the independent school on a per-student basis.

The money follows the students, which means parents in the more enlightened provinces have a real choice.

Interestingly, even researchers from the Canadian government confirm that kids in private schools receive superior education.

Private high school students score significantly higher than public high school students on reading, mathematics, and science assessments at age 15, and have higher levels of educational attainment by age 23. …In the reading test, private school students outperformed their public school counterparts by 0.081 log points, or about 8% (Table 5). The gaps were slightly larger in the mathematics and science tests. By age 23, 99% of private school students had graduated from high school, about 3 percentage points above the figure for public school students. The private school advantage was more evident in postsecondary outcomes (measured at age 23)—postsecondary attendance (11.6 percentage points), university attendance (17.8 percentage points), postsecondary graduation (16.2 percentage points), university graduation (13.9 percentage points), and graduate or professional studies (8.1 percentage points).

Private schools produced better results even after adjusting for the quality of students.

…private high school attendance was positively associated with postsecondary attendance and graduation outcomes. Specifically, postsecondary attendance and graduation outcomes were 5- to 9-percentage-points higher among private high school students. …It is well documented that private high school students generally outperform their public school counterparts in the academic arena.

Parents seems to recognize where they can get the best education for their kids. The Fraser Institute tracks enrollment patterns and an ever-increasing number of children are attending independent schools.

So what’s the bottom line? Simply that what we see in Canada augments evidence from SwedenChile, and the Netherlands about the benefits of breaking up state-run education monopolies. And we can give India honorary membership in this club since so many parents have opted for private schooling even though there’s no choice program.

P.S. Canada used to have the world’s 5th-freest economy, but it has dropped to the 11th-freest. Still a relatively good score, but Prime Minister Justin Trudeau has the country moving in the wrong direction.

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Back in 2014, I shared a report that looked at the growth of redistribution spending in developed nations.

That bad news in the story was that the welfare state was expanding at a rapid pace in the United States. The good news is that the overall fiscal burden of those programs was still comparatively low. At least compared to other industrialized countries (though depressingly high by historical standards).

I specifically noted that Switzerland deserved a lot of praise because redistribution spending was not only relatively modest, but that it also was growing at a slow rate. Yet another sign it truly is the “sensible country.”

But I also expressed admiration for Canada.

Canada deserves honorable mention. It has the second-lowest overall burden of welfare spending, and it had the sixth-best performance in controlling spending since 2000. Welfare outlays in our northern neighbor grew by 10 percent since 2000, barely one-fourth as fast as the American increase during the reckless Bush-Obama years.

But I didn’t try to explain why Canada had good numbers.

Now it’s time to rectify that oversight. I went to the University of Texas-Arlington last week to give a speech and had the pleasure of meeting Professor Todd Gabel. Originally from Canada, Professor Gabel has written extensively on Canadian welfare policy and he gave me a basic explanation of what happened in his home country.

I asked him to share some of his academic research and he sent me several publications, including two academic studies he co-authored with Nathan Berg from the University of Otago.

Here are some excerpts from their 2015 study published in the Canadian Journal of Economics. Gabel and Berg explain welfare reform in Canada and look at which policies were most successful.

During the 1990s and 2000s, Canada’s social assistance (SA) system transitioned from a relatively centralized program with federal administrative controls to a decentralized mix of programs in which provinces had considerable discretion to undertake new policies. This transition led to substantially different SA programs across provinces and years… Some provincial governments experimented aggressively with new policy tools aimed at reducing SA participation. Others did not. In different years and by different amounts, nearly all provinces reduced SA benefit levels and tightened eligibility requirements.

By the way, the SA program in Canada is basically a more generous version of the Temporary Assistance to Needy Families (TANF) program in America, in part because there are not separate programs for food and housing.

The study includes this remarkable chart showing a significant drop in Canadian welfare dependency, along with specific data for three provinces.

The authors wanted to know why welfare dependency declined in Canada. Was is simply a result of a better macroeconomic environment? Or did specific reforms in welfare policy play a role?

…what role, if any, did new reform strategies undertaken by provinces play in observed declines in SA participation. This paper attempts to address this question by measuring disaggregated effects of new reform strategies on provinces’ SA participation rates, while controlling for changes in benefit levels, eligibility requirements, labour market conditions, GDP growth and demographic composition.

Their conclusion is that welfare reform helped reduce dependency.

…our econometric models let the data decide on a ranking of which mechanisms—reductions in benefit levels, tightened eligibility requirements, improved macro-economic conditions or adoption of new reform strategies—had the largest statistical associations with declines in participation. The data suggest that new reforms were the second most important policy reform after reductions in employment insurance benefits. … In the empirical models that disaggregate the effects of different new reform strategies, it appears that work requirements with strong sanctions for non-compliance had the largest effects. The presence of strong work requirements is associated with a 27% reduction in SA participation.

Here’s their table showing the drop in various provinces between 1994 and 2009.

The same authors unveiled a new scholarly study published in 2017 in Applied Economics, which is based on individual-level data rather than province-level data.

Here are the key portions.

A heterogeneous mix of aggressive welfare reforms took effect in different provinces and years starting in the 1990s. Welfare participation rates subsequently declined. Previous investigations of these declines focused on cuts in benefits and stricter eligibility requirements. This article focuses instead on work requirements, diversion, earning exemptions and time limits – referred to jointly as new welfare reform strategies.

Here’s their breakdown of the types of reforms in the various provinces.

And here are the results of their statistical investigation.

The empirical models suggest that new reform strategies significantly reduced the probability of welfare participation by a minimum of 13% overall…the mean person in the sample faces a reduced risk of welfare participation of 1.1–1.3 percentage points when new reform strategies are present… the participation rates of the disabled, immigrants, aboriginals and single parents, appear to have responded to the presence of new reform strategies significantly more than the average Canadian in our sample. The expected rate of welfare participation for these groups fell by two to four times the mean rate of decline associated with new reform policies.

The bottom line is that welfare reform was very beneficial for Canada. Taxpayers benefited because the fiscal burden decreased. And poor people benefited because of a transition from dependency to work.

Let’s close by looking at data measuring redistribution spending in Canada compared to other developed nations. These OECD numbers include social insurance outlays as well as social welfare outlays, so this is a broad measure of redistribution spending, not just the money being spent on welfare. But it’s nonetheless worth noting the huge improvement in Canada’s numbers starting about 1994.

Canada now has the world’s 5th-freest economy. Welfare reform is just one piece of a very good policy puzzle. There also have been relatively sensible policies involving spending restraint, corporate tax reform, bank bailoutsregulatory budgeting, the tax treatment of saving, and privatization of air traffic control.

P.S. If it wasn’t so cold in Canada, that might be my escape option instead of Australia.

P.P.S. Given the mentality of the current Prime Minister, it’s unclear whether Canada will remain an economic success story.

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Canada is now one of the world’s most economically free nations thanks to relatively sensible policies involving spending restraint, corporate tax reform, bank bailoutsregulatory budgeting, the tax treatment of saving, and privatization of air traffic control. Heck, Canada even has one of the lowest levels of welfare spending among developed nations.

So when I saw a column in the Atlantic, suggesting that America can learn from Canada, I was instantly intrigued.

But it turns out that the author, Jonathan Kay, was more interested in extolling the virtues of big government rather than boasting about his nation’s economic reforms.

He starts by grousing about sub-par infrastructure in America.

There hasn’t been a new major airport constructed in the United States since 1995. And the existing stock of terminals is badly in need of upgrades. Much of the surrounding road and rail infrastructure is in even worse shape (the trip from LaGuardia Airport to midtown Manhattan being particularly appalling). Washington, D.C.’s semi-functional subway system feels like a World’s Fair exhibit that someone forgot to close down. Detroit’s 90-year-old Ambassador Bridge—which carries close to $200 billion worth of goods across the Canada-U.S. border annually—has been operating beyond its engineering capacity for years.

I have little doubt that America has serious infrastructure problems, particularly in big cities (such as New York, Washington, and Detroit) where spending decisions are driven by a desire to line the pockets of unionized bureaucrats rather than to provide services to taxpayers.

But is the United States really some sort of third-world backwater compared to our northern cousins? A few years ago, I looked at data from the World Economic Forum’s Global Competitiveness Report to see how the United States was ranked for infrastructure and discovered America was in 12th place. Which was higher than Canada’s 15th-place ranking.

But maybe things have changed since 2014. So I perused the most recent rankings. Lo and behold, the United States actually jumped one spot, to #11, while Canada remained in 15th place.

I don’t want to imply that the United States has good infrastructure policy. As far as I’m concerned, increased federal involvement has caused our system to become somewhat dysfunctional.

But since Canada ranks even lower, perhaps Mr. Kay shouldn’t be throwing rocks in a glass house.

What makes his error noteworthy is that he then tries to argue that America’s supposedly inferior infrastructure is the result of inadequate taxation.

The United States is falling apart because—unlike Canada and other wealthy countries—the American public sector simply doesn’t have the funds required to keep the nation stitched together. …The Organization for Economic Co-Operation and Development (OECD), a group of 35 wealthy countries, ranks its members by overall tax burden—that is, total tax revenues at every level of government, added together and then expressed as a percentage of GDP—and in latest year for which data is available, 2014, the United States came in fourth to last. Its tax burden was 25.9 percent—substantially less than the OECD average, 34.2 percent. If the United States followed that mean OECD rate, there would be about an extra $1.5 trillion annually for governments to spend.

The obvious implication of Mr. Kay’s column is that a much bigger tax burden would lead to much better infrastructure.

Yet if that was the case, then why does the United States rank above Canada?

Heck, I also want to ask why Mr. Kay to explain why the l0w-tax outposts of Hong Kong and Singapore ranked #1 and #2 for infrastructure?

His entire column is a case study of sloppiness. He starts out with an easily falsifiable assertion about infrastructure and he then makes another easily falsifiable claim about taxes. Does the Atlantic not have any editors?

By the way, none of this is an attack on Canada. Indeed, if you look at Economic Freedom of the World, you will see that Canada has passed the United States and now has more economic liberty. Or perhaps it would be more accurate to say that America’s score dropped faster and farther than Canada’s score. In any event, Canada is now ranked #5 and the United States is #16.

In other words, there is much to admire in Canada. And much to copy.

But Mr. Kay apparently doesn’t want America to mimic pro-market reforms. Instead, he thinks the lesson to be learned is that there should be higher taxes in the United States.

Let’s look at two final excerpts from his column, starting with his observation about the joy of taxation.

It’s really quite simple: When Canadian governments need more money, they raise taxes. Canadians are not thrilled when this happens. But as Justice Oliver Wendell Holmes Jr. put it, taxes are the price paid “for civilized society.”

I can’t resist pointing out that Justice Holmes made his point about taxes and civilization back when the federal government only consumed about 5 percent of economic output. As I wrote in 2013, “I’ll gladly pay for that amount of civilization.”

And the final excerpt implies that the business community in Canada doesn’t mind taxes.

…when I recently interviewed Canadian business leaders about the challenges they perceive, the word taxes didn’t get mentioned much.

Since the federal corporate tax rate in Canada is 15 percent, far lower than the 35 percent federal corporate rate in the United States, I’m not surprised that Canada’s business leaders no longer think taxes are their biggest problem. So why doesn’t Mr. Kay argue we should copy that feature of the Canadian system?

Sigh. I joked back in 2012 that supporters of small government in the United States might want to escape to Canada because of all the market-oriented reform. These are the changes that Mr. Kay should be extolling.

P.S. I’m surprised Mr. Kay didn’t advocate that we copy Canada’s government-run health system. You know, the one that is so wonderful that a Canadian politician escaped to the U.S. for surgery while leaving ordinary Canadians stuck in long waiting lines.

P.P.S. To close on a light note, here’s a satirical article about American leftists trying to escape to Canada after the 2010 elections.

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Every so often, I run across a chart, cartoon, or story that captures the essence of an issue. And when that happens, I make it part of my “everything you need to know” series.

I don’t actually think those columns tell us everything we need to know, of course, but they do show something very important. At least I hope.

And now, from our (normally) semi-rational northern neighbor, I have a new example.

This story from Toronto truly is a powerful example of the difference between government action and private action.

A Toronto man who spent $550 building a set of stairs in his community park says he has no regrets, despite the city’s insistence that he should have waited for a $65,000 city project to handle the problem. …Retired mechanic Adi Astl says he took it upon himself to build the stairs after several neighbours fell down the steep path to a community garden in Tom Riley Park, in Etobicoke, Ont. Astl says his neighbours chipped in on the project, which only ended up costing $550 – a far cry from the $65,000-$150,000 price tag the city had estimated for the job. …Astl says he hired a homeless person to help him and built the eight steps in a matter of hours. …Astl says members of his gardening group have been thanking him for taking care of the project, especially after one of them broke her wrist falling down the slope last year.

There are actually two profound lessons to learn from this story.

Since I’m a fiscal wonk, the part that grabbed my attention was the $550 cost of private action compared to $65,000 for government. Or maybe $150,000. Heck, probably more considering government cost overruns.

Though we’re not actually talking about government action. God only knows how long it would have taken the bureaucracy to complete this task. So this is a story of inexpensive private action vs. costly government inaction.

But there’s another part of this story that also caught my eye. The bureaucracy is responding with spite.

The city is now threatening to tear down the stairs because they were not built to regulation standards. …City bylaw officers have taped off the stairs while officials make a decision on what to do with it. …Mayor John Tory…says that still doesn’t justify allowing private citizens to bypass city bylaws to build public structures themselves. …“We just can’t have people decide to go out to Home Depot and build a staircase in a park because that’s what they would like to have.”

But there is a silver lining. With infinite mercy, the government isn’t going to throw Mr. Astl in jail or make him pay a fine. At least not yet.

Astl has not been charged with any sort of violation.

Gee, how nice and thoughtful.

One woman has drawn the appropriate conclusion from this episode.

Area resident Dana Beamon told CTV Toronto she’s happy to have the stairs there, whether or not they are up to city standards. “We have far too much bureaucracy,” she said. “We don’t have enough self-initiative in our city, so I’m impressed.”

Which is the lesson I think everybody should take away. Private initiative works much faster – and much cheaper – than government.

P.S. Let’s also call this an example of super-federalism, or super-decentralization. Imagine how expensive it would have been for the national government in Ottawa to build the stairs? Or how long it would have taken? Probably millions of dollars and a couple of years.

Now imagine how costly and time-consuming it would have been if the Ontario provincial government was in charge? Perhaps not as bad, but still very expensive and time-consuming.

And we already know the cost (and inaction) of the city government. Reminds me of the $1 million bus stop in Arlington, VA.

But when actual users of the park take responsibility (both in terms of action and money), the stairs were built quickly and efficiently.

In other words, let’s have decentralization. But the most radical federalism is when private action replaces government.

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