One of the hot topics sure to come up during the election campaign and the debates is the issue of taxation. The two opposition parties both are proposing increases in taxation .But their plans differ. The Liberals want to increase taxes on the top one percent of income earners, those earning above $200,000  through  an increase in the marginal rate of taxation for those earning above this level. This idea arises out of the work of inequality experts like Thomas Piketty who argue controversially that the normal capital accumulation process inevitably will lead to growing inequality unless there is a conscious policy of countering the tendency.

The New Democrats, on the other hand , surprisingly don’t address the issue of wealth directly. Instead they propose an increase in the rate of corporate income tax from the current historically low federal rate of 15 % down from over 25 % a few years ago. The combined rate for Ontario is now 26.5% versus 39% in the U.S. They haven’t specified the exact rate they want to raise the rate to but from comments by their leader Mr.Mulcair it would be somewhere close to 18 %. For purposes of comparison we should note that the U.S. rate is much higher.

Mr. Harper will argue that this increase in the rate will kill jobs and slow growth losing corporate directed investment to our competitors. Mr. Mulcair will respond by pointing out that this proposed rate increase will still leave the rate well below what it was when Mr. Harper came to power.

Furthermore ,most shareholders are well off. These well off shareholders have done very well this past decade unlike the vast majority of Canadian workers.In addition there are many loopholes in the tax act by which corporations can legally shelter income by moving their head offices to a low tax jurisdiction.

But who pays the tax ? The fact is there is no scientific consensus on the precise answer to the question. Some economists argue that the tax is largely paid by the shareholders of the corporation who receive smaller after tax dividends and capital appreciation in order that the tax can be paid. Other economists argue that while shareholders pay as much as 80 % of the tax, the workers pay as much as 18 % in the form of lower wages due to lowered productivity because of the slower growth of capital and investment in technology. There is also the argument that the tax can be largely shifted to the final consumer of the product. But here we have to pay attention to degree of oligopoly power the firm has which determines its ability to increase prices without losing more sales than its worth to competitors. If it lacks this oligopoly power it cannot shift the tax forward to consumers very easily.

So the final judgement is up in the air. Increasing taxes may well yield additional revenues from the corporations and shareholders but will it lose revenues from workers whose wages and job opportunities grow more slowly. Its a complex question that needs careful thought and research to answer. We will see if in the debates the leaders address any of these complexities or simply resort to vague slogans and sweeping claims.