Jonathan R. Kesselman

Critical Essays on Canadian Public Policy: Policies to Stem the Brain Drain - Without Americanizing Canada

Calls for Canadian policies to respond to the threat of brain drain to the United States often ignore the factors that have retarded such outflows to date. This study offers a holistic view of individual decisions to migrate. Most people care about the public services they receive as well as the taxes they pay, and many also care about the civic nature of the society they inhabit as well as the goods they can purchase privately. This perspective influences the assessment of policies as diverse as taxation, income security, public health and education, regional incentives, and social investments. A key finding is that Canadian policies should be driven by domestic objectives of equity, efficiency, and growth rather than stemming emigration or mimicking American policies. Canadian policies to spur sustained economic growth for the benefit of all Canadians should take care not to compromise the social, civic, and cultural attributes that distinguish Canada.

Payroll Taxes in the Finance of Social Security

The growing use of payroll taxes to finance social security has raised concerns about their potential effects on employment. This analysis reviews evidence about the economic attributes of payroll taxes and compares them with alternate means of finance. First, the comparative attributes of general payroll taxes unattached to benefit programs are examined, and their long-run performance in economic efficiency and growth are found to be relatively favourable. Second, the reasons for using payroll taxes to finance social security programs in particular are assessed. The nature of benefit-tax linkages and the associated incentive effects are explored. Third, evidence on the long-run incidence of employer payroll taxes and their employment effects is assessed. It is found that most or all of the short-run employment effects dissipate in the longer run, as the tax burden is shifted into lower pay. Policy findings are that payroll taxes are well suited for financing social security, benefit-tax linkages may need reform in some programs from both the benefit and tax sides, and the transitory employment effects of changes in payroll tax rates should not dominate longer-run considerations for public policy.

Income Splitting for Two-Parent Families: Who Gains, Who Doesn't, and at What Cost?

In the 2011 Canadian federal election, the Conservative Party pledged to allow couples with minor children to split up to

Fairness in Taxation: Exploring the Principles

50,000 of their incomes each year for tax purposes. Tax savings would arise to the extent that the spouses’ marginal tax rates differ. Advocates of splitting claim an inequity in tax burdens for one-earner couples versus two-earner couples and often invoke the image of the traditional family with mom at home minding the kids. This report provides a quantitative analysis of the economic impacts of the federal income splitting proposal including the effects if the provinces adopted a similar scheme.

Economics versus Politics in Canadian Payroll Tax Policies

The papers in this volume explore the idea of distributive justice and fairness in taxation. The collection begins with Heads excellent presentation and analysis of equity in the public finance literature. The other authors, starting from this point, critique and amplify the concept from various philosophical perspectives and academic disciplines.

Innovation in Public Debt Management to Reduce the Federal Deficit

In recent years the federal government has increased its reliance on payroll taxes. This approach is revealed most directly in Employment Insurance premiums but also emerges in planned increases for Canada Pension Plan premiums. Economic criteria support these moves to the extent that premiums are strongly linked to benefit entitlements. However, much of the EI and increased CPP premiums are unrelated to benefits and thus constitute general payroll taxes. Such taxes compare favourably in economic terms with some alternative taxes but are regressive when imposed with a ceiling on taxable earnings. These developments appear to be driven by political pressures rather than economic criteria. If the government is politically constrained from raising the rates of other, more visible taxes (such as income tax and GST), then the payroll tax changes may be economically optimal choices subject to the constraint. In the longer run, basic reform of the other taxes and reduced reliance on general payroll taxes would be desirable.

Dimensions of inequality in Canada

By implementing new methods of debt management, the government of Canada could significantly reduce its largest outlay, debt service costs. This paper assesses the advantages, operation, and economics of one such innovation--U.S.-dollar denominated treasury bills (USDTBs). Average annual savings from USDTBs could range from

Tax Incidence, Progressivity, and Inequality in Canada

250 million to more than

Financing Canadian unemployment insurance

1 billion, depending upon how they were applied and economic circumstances. Any exchange rate losses would be more than offset by the interest savings. Exchange risks would be justified by the reduced risks associated with the total public deficit--the sum of debt service charges plus the fiscal operating deficit. Reducing debt service costs through USDTBs is shown to be more attractive than most other means of curbing the deficit.