Tax authorities are trying to balance the need to stimulate the economy with the need to reduce deficits and begin to reduce debt. If they try too hard to hype up the economy using fiscal stimulus, they fall further into debt. Whereas raising taxes too much stifles the purchasing power of individual and corporation.
Every country in the world is having this debate. Viewing how Japan has been mired in stagnation for the last 20 years, and recalling how the Great Depression hung around for all of the 1930’s, the U.S. is determined to stimulate their way back to normal. It seems to be working. But given this stimulus spending and the considerable military costs of recent years, the U.S. debt is mounting up enormously. And every state in the U.S. is equally challenged.
In Canada we have also fallen behind over the last few years. The Conservative Party of Canada and Finance Minister Jim Flaherty are determined to retain their image of being fiscally conservative and balancing the budget. But it is a complicated business. Especially when taxes are being raised by Quebec and Ontario. Let’s see how Flaherty will do in today’s budget.