Kevin Milligan

Notes for C.D. Howe conference “Taxing Canadian Business: Time For Change”
Toronto ON, April 8th 2016

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As the first speaker I will take on the role of table-setter.  I will do this by first providing some motivation about why we should care about business taxation–a pre-game pep talk for us wonks. Second, I will emphasize some research gaps we need to work on so that we can present the best possible case to decision-makers.

Why care?

In 25 years, we want a prosperous Canada with good jobs and growing incomes. But that economy of 2041 for the most part does not yet exist. People work in jobs that don’t exist. They work for firms that have not yet incorporated. They work in industries we haven’t dreamed of. We will get to that prosperous economy of 2041 piece by piece through thousands of investment decisions–where to invest, how much, when, and what.  To make sure as many of those decisions as possible favour Canada, we need an attractive investment environment.

How do we get firms to invest in Canada? An educated workforce helps. A government sector that efficiently provides security, healthcare, and other public services helps. But we also need a tax environment that favours not just the actual investment but also the booking of profit here in Canada.

A great deal of evidence suggests that corporate taxes–perhaps moreso than personal income taxes–can influence investment and growth. So, as we embark on a day of discussion about improving the corporate tax structure in Canada, know that what we are doing is important. If 2041 could call us up, send us a tweet from the future, or however they’ll be communicating then, i think 2041 would be thankful for your efforts.

How to bridge the research gap.

It’s not our job to politically sell a tax reform–that is for politicians. But what we can do is present the strongest possible evidence to build the strongest possible case to maximize the possibility of a successful reform being put into action.

I think there has already been some good progress in setting out the directions reform could take, and I hope to learn some further steps forward in the presentations today. But in my conversations about business taxation with policy makers and corporate groups, I think we researchers have work still to do.

Here are three ways we can improve our case.

1) quantified and realistic estimates of the impact on growth.

There needs to be a clear and tangible payoff for undertaking a big reform effort. The challenge here is that most empirical work is from outside Canada. This matters because the impact of a corporate tax reform may be different in small open economy with flexible exchange rates.

Also, since many of the gains come from removing tax wedges from rates of return, I want to know that the magnitudes of the gains hold up in the low return environment where we seem to be stuck. Some argue that monetary policy in low-interest-rate economies is akin to “pushing on a string.” We need to work harder to show that corporate tax reform is not “pushing on a string” in today’s economy.

So, we need solid simulations of expected benefits.

2) credible examples.

I’ve talked about some of the business tax reform models with business groups and policy makers. A question that comes back to me is whether other countries have tried these models. They aren’t so impressed by “Croatia tried it for a few years” or “Brazil for a bit”. They seem hungry for practical examples of how any reform will work, and to be convinced it is implementable as we move from a professor’s chalkboard to a corporate boardroom.

3) international aspects.

A related practical concern is how a reform will change the tax picture for multinational firms. In particular of course, the precise theoretical and practical impact of any differences between Canada and the US environment need to be clear.

So, I’m looking forward to hearing the presentations today. It is important work. But we have some gaps to fill if we are going to improve the chances of business tax reform becoming a priority.

Notes prepared for roundtable on fossil fuel divestment

Event hosted by Liu Institute for Global Issues, UBC

April 6/2016

Notes by: Kevin Milligan, Professor of Economics, Vancouver School of Economics

Updated 7pm after the roundtable…see at bottom.

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I have seen four arguments put forward in favour of divestment from fossil fuel assets. I find none of them persuasive. Here are my notes for the roundtable, addressing each in turn.

1. Fossil fuel divestment will hurt fossil fuel companies.

This is very unlikely. To a large degree, asset prices reflect expected future returns. If the current price of an asset diverges from expected future returns, there is an opportunity to buy a flow of future returns cheaply. If UBC sells some oil stocks, the only way this will lower asset prices is if no one in the world wants to buy future returns cheaply. If there is at least one person with deep pockets who wants to buy future returns cheaply, any pricing deviation will close quickly. I think there are sufficient deep-pocketed pools of wealth happy to buy cheap flows of future returns, so I don’t think  divestment will lower asset prices.

2. Fossil fuel divestment will improve portfolio returns.

Without better information than deep-pocketed market participants, removing an asset from portfolio consideration has a non-positive impact on the expected risk-return portfolio frontier.

Some divestment campaigners seem convinced that future returns for oil companies will be poor. But even if true, this fact should be reflected in prices already. Perhaps divestment campaigners are better at stock-picking than people who ply the stock-picking trade for a living. I have seen no evidence this is true.

3. Producing fossil fuels is immoral; we should own none.

Moral belief systems are personal in nature. I can’t tell others that my moral beliefs are better than theirs; but neither should others force their beliefs on me.

 I think that collectively deciding on a “moral” set of  investments is a difficult task. For this reason, my view is that moral concerns should not be considered for investing common pools of money. If one has strong moral concerns, a financially savvy individual could offset the asset holdings of the common fund on one’s own account, and exercise his her moral judgment individually.

But let’s suppose I’m wrong about that and we do engage the task of choosing moral investments. It strikes me as arbitrary that oil producers be the target of this campaign. Why not General Motors, which manufacturers automobiles–a major contributor to CO2 problems. Why not goods made in factories powered by Chinese coal–a major CO2 emission source. Why oil companies in particular? I don’t think we should penalize one particular way of burning carbon.

Moreover, why target producers at all–do consumers not have any responsibility?  No one would produce if there were no demand for goods that use carbon. The best way to lower carbon use is to lower the carbon content of consumption, not to stop producing energy.

I also dismiss the notion that using carbon–whether as producer or consumer–is in itself immoral. Consuming carbon entails a private cost and a social cost from the environmental externality. So long as both aspects of cost are paid in full, consuming carbon is no more immoral than consuming a salad, a hair-cut, or a tennis ball. Consuming carbon does involve tradeoffs–but is not in itself immoral.

4. Divestment may not be effective, but it provides activists with a ‘win’ that makes them feel effective.

I’m the last person who should be asked for advice on how to motivate a movement of activists. But for my own time, I prefer to devote effort to causes where I both believe in the outcome and believe my efforts have some impact. To argue that there is no other, better way for activists to employ their activist efforts strikes me as displaying a paucity of both confidence and imagination.

Right now as we sit here, ten provinces and the federal government are considering how (and in the case of Saskatchewan–whether) to respond to the recent Paris greenhouse gas commitments. There has never in the history of the country been a more fruitful time to engage in policy advocacy that could push one’s provincial government in the direction of action. Devoting my time to divestment would have the same impact on the environment as yelling at clouds or pounding on sand. Me, I can think of more fruitful ways to spend time that would have a meaningful impact on climate policy in Canada. That’s how I will choose my efforts, but I am far from expert in how best to motivate activist movements so they must make their own choices.

Update: 

The event was held under the Chatham House Rule, so I will add a couple of comments here about what I learned.

The proponents of divestment did not make points (1) and (2) above. They did assert (3) and (4). On the political strategy, they argued that the divestment issue provided a unique opportunity to build a social movement to build awareness of climate change; that other potential policies would have been worse focal points for building student/university involvement. I’m surprised by that, but I have little experience in building social movements. I learned from the explanations and examples on this.

I didn’t change my mind on the issue of divestment, however. I remain resolute that we should treat all burning of carbon equally, and not single out extractive industries for particular moral castigation. Carbon burned in extracting oil has the same impact on the climate as carbon burned making cars or flying planes; I don’t agree with the case for separating and shunning one industry for special treatment in university financial portfolios.

Below is the text of a lunch talk I presented to the Ottawa Economics Association on January 27, 2016 in Ottawa.

The slides for the talk are available here.

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Budget preview

Ottawa Economics Association

January 27, 2016

Chateau Laurier, Ottawa

Thank you very much for the invitation to speak to this group.

I’m Kevin Milligan from UBC’s Vancouver School of Economics—in the picture is our fancy new building.

I was asked to prepare a budget preview, and that’s what I’ve done for you. Instead of going in depth on a couple items, I’m going to attempt more of a ‘buffet’ approach with smaller servings of a larger number of topics.

I’m also going to try to do this within the allotted 25 minutes so we’ll have lots of time for questions—so let’s get right into it.

First, let’s have a look at three current issues we know are part of the current budget discussions.

Canada Pension Plan

The chart shows the public pension replacement rate, which is the combined CPP-OAS-GIS pension total divided by average earnings. This is based on joint work with Tammy Schirle.

CPP currently replaces 25% of earnings up to a cap set at median earnings. This YMPE cap for 2016 is $54,900. OAS pays a flat monthly cheque of $570, and GIS tops up the incomes of the bottom 1/3 of seniors.

Taken together, people under $30,000 of earnings replace more than 75% of their work-life earnings, even if they don’t save a dime when working and their workplace has no pension.

Even around median earnings, more than 50% of worklife earnings are replaced by existing CPP/OAS/GIS. It’s only when you get north of $50K of lifetime earnings when the public pensions alone start doing a noticeably poor job of replacing earnings for those without other sources of retirement income.

A CPP reform would do some combination of two things. First, it might increase the replacement rate above 25%. Second, it might increase the YMPE cap above the current $54,900.

The chart shows the resulting replacement rate under the status quo and two alternatives. The ‘PEI’ option was developed in 2013 by then-PEI Finance Minister Wes Sheridan, featuring three different CPP replacement rates over three different earnings ranges.

The ‘double YMPE’ option keeps the 25% CPP replacement rate and simply extends the YMPE cap to around $100,000. This is much simpler than the PEI proposal.

What I see in that graph is that the simple ‘double YMPE’ proposal delivers replacement rates indistinguishable from the more complex PEI proposal.

Prospects for reform of the Canada Pension Plan are strong. With favourable governments in Alberta and Ontario, meeting the 2/3^rd population + 2/3^rd provinces is a real possibility.

After their December meeting, the Finance ministers hinted they would take this route by considering a boost to the YMPE to $75,000. I think that’s a wise direction for reform.

To be decided are two big items: First what to do about those with comparable workplace plans? Are they allowed to opt-out of the new CPP tranche? Second, whether to allow provinces to move ahead with their own more ambitious plans, like the case of Ontario.

One last note about the calendar: If the federal government and 7 provinces approve of a reform by December 31, 2016, a reform would take effect on January 1^st, 2019—before the next election.

PIT changes

The Liberal election platform contained a number of tax policy changes. At the top of the list is the ‘Middle-class tax cut’ and the new 33% federal bracket for the top 1% of earners.

But there are several items we should hear more about in the budget.

• Timing and final configuration of the Canada Child Benefit.
• Eliminating 110(1)(d) preferred treatment of stock options.
• Tightening rules around small business CCPC taxation.
• Review of $100B in tax expenditures.

I think all four of these items are sound in principle, but the details are very important to get right. I’d be happy to talk about any of these during question period.

The fiscal item receiving the most attention has been estimates of the revenue gain from the high-income tax bracket. Let me offer some thoughts on this matter.

When considering taxing the highest income individuals, it is prudent to adjust for the reality that high-income individuals have some ability to shift income out of the PIT tax base in response to higher rates. This often occurs through financial and accounting transactions that shift income away from domestic taxation.

How much revenue would potentially be lost with the new 33% tax bracket because of tax avoidance?

In their platform document, the Liberals estimated the new tax bracket would take in $2.8 billion, and that allowed for $600 million to account for some possible tax avoidance leakage.

Alexandre Laurin from CD Howe Institute looked at the numbers and suggests that the new bracket will bring in only $1 billion.

The PBO has recently come out with an estimate of $1.8B, while the Department of Finance in December came in at $2B.

Who’s right here?

Based on my research in this area, I think the PBO and Finance numbers look closer to the mark, with one big caveat.

The PBO and Finance numbers are for a ‘business as usual case’. By that I mean they take the rest of the current tax system as a given.

In my view, the higher platform revenue number can be achieved, but only if the budget begins to take very seriously the shutting down of the avenues of tax avoidance. That takes some tax policy deftness, but also requires a large serving of ‘political will’ to pick fights with those who will be affected by the tax measures.

I’ll be looking closely at the budget for actions reflecting a serious response to tax avoidance.

Stimulus for a weak economy

The best measure economists have for the sustainability of public finances is the debt to GDP ratio.  As recently as December, the Prime Minister reiterated the commitment to keep the debt to GDP ratio declining “every year”. Let’s dig into the numbers and see what that commitment entails.

Because debt-to-GDP is calculated in nominal terms, we need to have a projection of nominal GDP going forward. Fortunately, TD Economics publishes a quarterly GDP deflator projection, so I combined those with the published 2015Q3 GDP numbers to project nominal GDP forward for the 2016-17 fiscal year.

Before the numbers, some caveats.

• 2015Q3 GDP could be revised, either way.
• Real GDP and GDP deflator projections might need updating from December’s TD projection.

Keeping that in mind, I calculate that the maximum deficit consistent with a non-declining debt-to-GDP ratio is about $22B for 2016-17.

More interesting is the sensitivity of this number to the underlying growth assumptions.

If nominal growth gets pegged down 100bps, not only will the government need to project lower revenues but their ‘allowable deficit’ will also shrink down to $15B. That’s a double-whammy.

Given this, will the budget be able to credibly project a declining debt-to-GDP ratio? In my view, if the deficit starts going north of $20B, it will take increasingly aggressive GDP growth assumptions to deliver on the commitment.

In other words, if the government wants to heed the calls from some quarters of an immediate large injection of an extra $10B or $20B on top of their existing plan, they will need to bust through their debt-to-GDP commitment.

Should they? I’m not a macro-economist, so I have more questions than answers on the matter of fiscal stimulus. I have two big questions.

First, I want to be convinced that a big fiscal stimulus can be effective. Can it hit the right people in the right industries at the right time? Moreover, the case for fiscal policy can be questioned in a small open economy with inflation targeting.

Second, even if it were effective, is a big general macro stimulus the right response to a regional commodity price shock? A slowdown in the rate of national GDP growth by a point or so doesn’t seem like the kind of emergency where you would want to open the spigots on $10s of billions of unplanned emergency spending.

That said, the case for some action is justified. The oil-province economies have certainly had a tough shock delivered to them, and some transitional and targeted action should be taken. For example, for already-planned and ready-to-go infrastructure it doesn’t seem harmful to me to get the cheques out the door quickly.

Three New Items

Now I’d like to turn to three items that are not currently on the agenda, but I think should be over the next few years.

The goal of these items is use the tax system for what it should do:  both encourage economic growth, and also ensure the benefits of growth are felt across the income distribution.

PIT reform

First on my list is reform of the Personal Income Tax system. The PIT as at the heart of our tax system for two reasons.

First, it is the revenue workhorse, raising about half of the $300B of federal government revenues. Second, it is the sole major revenue tool that is redistributive.

In my view, our tax system needs to be—at the very least—proportional. By proportional, I mean that the percent tax burden on everyone is the same. We don’t want a situation in which high earners are paying a lower proportion of taxes than middle earners.

Now, many Canadians might desire a system that goes beyond proportionality to one that is truly progressive. But I think the concept of proportionality is one that likely receives broad support as a bare minimum.

Here’s the thing:  because the other major revenue-raisers are regressive, if you want the overall tax system to be at least proportional, you need the PIT system to be progressive. This isn’t about being a radical Robin Hood—a progressive PIT is necessary even to meet the minimum baseline of overall fiscal proportionality.

What should be the goal of any PIT reform?

I think two things are critical. First is to set out a clear purpose for the PIT—and I just gave my view on what I think that purpose ought to be.

But the reason a strong and explicitly stated purpose is important is that it gives some structure to what has become a big mess, with attempts to use the PIT as the tool to meet a wide variety of social and economic goals—not to mention short-run political goals.

This feeds into the second criticism:  the system is too complex. The tax system has been larded with a large variety of special tax expenditures, exemptions, and preferences. Moreover, the narrowly-defined PIT system interacts with our system of refundable tax credits in subtle but important ways.

This complexity matters for two reasons.

First, the complexity obscures the tax incentives that clever policy analysts designed to meet various social goals. When these incentives are stacked on top of each other, the incentives are not going to be seen by every-day taxpayers.

Second, we know from evidence on the Children’s Fitness Tax Credit that high income families are much more likely to claim the credit than middle income families. This means that, in practice, complexity comes with a side-dish of redistribution towards high earners.

As a way forward, I’ve found very attractive an idea that Robin Boadway has pushed a few times. The idea is to consolidate our existing refundable and non-refundable tax credits into a simpler more transparent refundable tax credit. Wayne Simpson and Harvey Stevens have a useful Calgary School of Public Policy Research Paper on this last year that is worth a look.

Income and Consumption taxes

The conventional wisdom from economists is that we should switch from income taxation to consumption taxation. This conventional wisdom is well-expressed in the quotation. I don’t mean to pick on Clark and Devries—as most of you know, they are both fine economists—but their consensus sentiment is oft-repeated.

I’ve become increasingly skeptical of this conventional wisdom over the past few years.

The underlying logic of the conventional wisdom is sound. We economists all know the famous Irving Fisher diagram from our undergraduate studies, and its more advanced Euler-equation analogue from our graduate studies.

But, we’re in a world right now with interest rates close to zero. Moreover, given the availability of RRSPs, RPPs, tax-free housing, and now TFSAs, who exactly is facing taxation on the marginal dollar of saving? Here’s the answer: almost no one.

So, while I accept the underlying logic of the income-vs-consumption economists, I want to see clear evidence that the tax wedge that concerns them is actually something that matters in Canada in 2016.

If we’re going to undertake a contentious reform, I’m not willing to proceed on faith–I want to see clear Canadian numbers on what the gain to reform would be.

Improve the WITB

The last item on my ‘to-do’ list is the Working Income Tax Benefit. The WITB provides a boost to earnings for those who are looking to join the workforce in the manner you can see in the chart. This benefit does not go out like other refundable tax credits as monthly or quarterly cheques. Instead, it is embedded within the standard tax form.

There is strong evidence from a number of countries that these kinds of ‘in work’ benefits improve employment rates, and the extra dollars improve the lives of parents and kids.

But, in my view, the current WITB suffers from two shortcomings.

First, it is too meagre. If you are a minimum wage full time full year worker, your annual earnings would be about $20K.  But, a single worker earning $20K gets no WITB. To me, an effective WITB would target the exact kind of worker I described, so the existing configuration falls short.

Second, because it is delivered through the tax system, buried in the middle of the complex tax form, it lacks salience. How many Canadians actually know this benefit exist and plan their work year around it? If I were designing a tax benefit to be the least salient possible, it would look pretty similar to today’s WITB.

To fix these problems, WITB needs to be expanded—which will cost more money. But its structure needs to be changed as well to improve salience. I have some ideas how to do that—but I’ll save those for another time.

Two ‘little bites’

To finish off, I have two ‘little bites’ to offer.

Last year I wrote a review of the tax system in Nova Scotia. At the time of writing, Nova Scotia had the highest personal tax rate, the highest corporate tax rate, and the highest HST rate in Canada. How is Nova Scotia supposed to raise taxes on its own to finance current and future spending needs—especially when the working age population has been in absolute decline since 2006?

Finally, continued strong corporate investment is pivotal for our future prosperity. Corporate taxes are neither the only nor the most important determinant of corporate investment, but they do matter. I’m not sure we need to do more on corporate tax rates in Canada, but I think efforts to design better structure of corporate taxation are worth attention. Proposals from Robin Boadway and Jean-Francois Tremblay from Mowat, as well as Ben Dachis from C.D. Howe have pushed in the direction of rent taxation systems. These systems would have a material impact on the incentive to invest, and I hope we see more research in that direction.

That’s it—thanks for your attention and I look forward to your questions.

Comments on Conservative platform costing
October 9, 2015
Professor Kevin Milligan, Vancouver School of Economics
University of British Columbia

Motivation and Disclosure

Economists from the Conservative campaign team asked me a few days ago if I could take a look at their platform costing. I was not involved in the development of the Conservative platform at any step before this request, although in the past few years I have spoken with Conservative economists a few times on policy matters. My full disclosure is here. I endorse no party and no platform.

Speaking for myself, I would prefer the Parliamentary Budget Officer be mandated with providing common forecasts and platform costing for all parties during elections, as happens in some other countries. In the absence of such a mandate, voters may be left to assess parties’ claims without objective guidance on the numbers being presented. In the interests of helping to fill that void, I agreed to take a look at the CPC numbers. I did the same for the Liberal Party a few weeks ago here. The NDP had three respected and capable outside economists (Fortin, MacEwen, and Osberg) review their numbers. I do not intend to arrogate to myself some kind of unique gate-keeper role, and encourage others to look through the Conservative numbers with care.

Overall Assessment

The Conservative fiscal plan uses transparent and prudent costing strategies; budget forecasts are achievable with firm expense control.

Forecasting Framework

In my view, fiscal forecasts should be based on the latest available information. Since the April 2015 budget, we have an updated growth forecast from the Bank of Canada, the fiscal consequences of which were estimated by the Parliamentary Budget Officer. In the past few weeks, still more information has arrived, in the form of an upgraded baseline (from the Annual Financial Report) for 2014-15 and positive initial GDP numbers for July. For my taste, the July PBO numbers represent the most recent credible fiscal forecast. The Conservative platform has chosen to use the April 2015 budget numbers as the baseline. However, The budget under the Conservative plan would be balanced in every year even using the PBO numbers. To achieve this outcome, though, firm attention must be paid to managing expenditures.

Overall Costing Strategy

Most platform promises in the Conservative plan are for specific spending amounts on initiatives, meaning little or no modeling was necessary. A handful of items did require more detailed attention. For some (such as the Home Renovation Tax Credit), previous experience with a similar tax credit was used as the starting point for the costing. For others requiring more difficult assumptions, estimates were requested from the Library of Parliament, through an MP. Finally, some items were costed using the Statistics Canada SPSD/M model.

Conservative staff walked me through each line item and described to me the costing strategy. I learned that, where warranted, take-up percentages were estimated and behavioural responses to tax changes were considered. Reference to external data and the Library of Parliament for particularly difficult items added a great deal of credibility to the costing, in my view.

Overall, I left the conversation satisfied that the costing strategies easily met the standard I expect for public policy analysis.

One-Year Operating Freeze

The Conservatives propose to extend an operating spending freeze to the 2016-17 fiscal year. Given higher salary and benefit costs, maintaining a spending freeze will require further reductions and efficiencies be found in government operations. Whether ths fiscal policy is a wise course of action in the current economic environment is a decision for voters to make. I can comment on the credibility of this commitment.

Many governments fail to adhere to announced spending freezes. However, the Conservative government since 2010 has achieved their target of frozen spending. This gives their announced spending freeze for 2016-17 a strong measure of credibility, in my opinion.

Comments on Liberal Fiscal Plan and Costing
Professor Kevin Milligan, Vancouver School of Economics
University of British Columbia
September 26, 2015

In this blog post, I am providing an assessment of the Fiscal Plan and Costing document circulated today by the Liberal Party of Canada.

Disclosure and Motivation

As outlined in my disclosure, I have been an occasional unpaid advisor to the Liberals in the past few years and in that capacity have given advice on some of the individual items in the costing document. In addition, a few days ago I gave some feedback on a draft of this Fiscal Plan. As outlined in my disclosure, I am a member of no party. I am endorsing no platform.

Through this election cycle, I have also responded to requests for help with economic advice from the Conservative Party and the NDP. I view these engagements with policymakers as part of my role as a professor at a public university.

In the future, I think the economic discussion during election campaigns in Canada would be much improved if there were common forecasts and credible platform costing by all parties. I’m glad to see both the NDP and the Liberals proposing a change to the Parliamentary Budget Officer mandate to allow these services to be offered in future election cycles. In my view, this would be an improvement over the status quo.

But for now, many voters may struggle without some kind of expert assessment of party platforms. That’s why I decided to write this post—I’m doing this on my own accord; it was not requested of me. Having disclosed my involvement in the process that generated the Liberal document, I leave it up to the reader to decide if my writing is impartial.

Overall Assessment

The costing strategies used in the Liberal Fiscal Plan meet very high standards and the budget balance targets are achievable.

Below I discuss five aspects of the document in detail.

1. Forecasting framework

The core of the forecast is built from the projection provided by the Parliamentary Budget Officer for the years 2015-16 to 2017-18. This provides the ‘revised forecast’ in the first two columns of the ‘planning framework’ on p. 7. The last two columns show the forecasts for 2018-19 and 2019-20, with a small discount relative to the April budget.

Projecting GDP (and the resulting spending/revenue/budget balance) three and four years out involves a lot of uncertainty. While macro-forecasting is not my expertise, I don’t think the numbers used for the 3rd and 4th year are unreasonable.

Over the four years of the framework, the April budget forecast had a total of $18.7B in combined surplus and contingency. In the Liberal document, the four-year total is reduced to $13.8B, a reduction of $4.9B. Given the reduced growth estimates by the Bank of Canada and the July PBO report, I believe the Liberal planning framework uses a prudent forecast.

I’d like to make two important points about this forecast

First, the small deficits cause no structural fiscal concern. The deficits in years 1 and 2 of the plan are only about 0.5% of GDP. In each year of the plan, the debt-to-GDP ratio declines. This ratio is used by economists as the best gauge of long-run fiscal sustainability.

Second, the forecasting framework does not make use of ‘multipliers’ in the GDP or budget baseline numbers. Unless every dollar of the deficit crowds out other activity in the economy, the economy is very likely to grow in response to the small deficits—at least to some degree. This extra growth would generate extra tax revenue relative to the assumed amounts in the planning framework.

The multipliers estimated by the Department of Finance are shown on p. 7 of the Liberal document. If one took those multipliers and cut them by half or even two-thirds, the impact on the bottom line would still be counted in the billions of dollars.

The Liberal document has followed Department of Finance practices and not included these multiplier effects. In my view, this provides a fairly large fiscal ‘cushion’ that should be kept in mind when evaluating other parts of the document.

2. Overall costing strategy

A variety of strategies were used for costing. External validation from the Library of Parliament was used extensively. Standard tools of the trade like the SPSD/M model were also used. Other line items come from the CRA, Finance Tax Expenditures, and the Public Accounts. Finally, some of the bigger items were costed using purpose-built fiscal-demographic models.

This overall costing strategy meets very high standards. I believe the appropriate source is used for each of the items I checked. In particular, the use of the Library of Parliament to check on the costing of several of the tax line items provides very credible numbers. This is a standard for transparency for which all parties should aim in costing their election promises.

3. Canada Child Benefit

In the spring, I had a chance to dig deep into the fiscal/demographic model the Liberals developed for the Canada Child Benefit. I developed strong confidence in the model, in part from its benchmarking against SPSD/M, Public Accounts, and CRA numbers.

The Canada Child Benefit would cost $21,725M in 2016-17, paid for by cancelling four existing measures totalling $19,955M. The difference of $1.8B represents the net draw on resources.

The model completely accounts for the taxation of the Universal Child Care Benefit, contrary to some press reports from May. Also, there was some concern in the press about a different (lower) forecast for the existing NCBS/CCTB/UCCB. However, changes that affect the forecast for those existing benefits would also affect the proposed CCB. The Liberals have shown me numbers suggesting that the new lower forecast would actually decrease the net draw on resources.

Overall, I think the costing of the CCB is very credible and easily meets the standards I expect from public policy analysis.

4. Expenditure and Tax Expenditure review

I normally approach unspecified ‘expenditure savings’ line items in budget documents with a great deal of caution. My caution is somewhat relieved in this Liberal document by two factors.

First, the Liberal document specifies more than a page-full of specific ideas on which the proposed review would focus. On the tax side, these include substantial items like the family taxation aspects of CCPCs, the taxation of options for high earners, and the tax expenditures for high earners specified by a PBO report. On the expenditure side, advertising and consulting are good targets for review, and count in the hundreds of millions of dollars.

Second, the timing of the revenue change is ‘backloaded’, not hitting $3B until the fourth year. This would give sufficient time for a thorough review to do its work and change administrative procedures to implement any changes.

I think that a serious expenditure and tax expenditure review should be able to reach the $3B target by year 4.

5. High Income Tax Bracket

It has been standard practice in Canada to account for potential rate changes by applying the new rates to the amount of income reported under the old rates. This kind of ‘static’ analysis does not account for the possibility that there may be some ‘behavioural response’ to the new tax rates. In the case of a high-income tax bracket, this behavioural response may take the form of tax planning by high-income tax payers who use make use of legal tax strategies to lower their tax bill.

The static estimate for the extra revenue from the new tax bracket for 2016-17 based on Library of Parliament numbers is $3.4B. The Liberal document only books $2.8B of revenue, allowing for up to $600M of behavioural response.

Accounting for behavioural response is always difficult because we can’t be sure of the magnitude. Economists (including myself) have tried to estimate these magnitudes, finding some evidence of sizeable response. Some economists might expect up to half of the potential revenue to disappear, but there are three mitigating circumstances here in the plan presented by the Liberals.

• This is federal taxation. Many estimates of high-income behavioural response are based on provincial taxation. There is a substantial difference in the scope for shifting income across provincial borders in response to a provincial tax change. This means that the response to a federal tax change will be much less than to a provincial tax change.
• The tax expenditure review. The review laid out by the Liberal document has a focus on the top 1% of earners. By shutting down potential tax planning avenues, the magnitude of the behavioural response will be diminished.
• Extra CRA resources. The Liberal document earmarks extra resources to the CRA for enforcement.

Taking this together I think that with strong administrative efforts and an effective tax expenditure review, 2.8B in additional revenue is a reasonable estimate.

I will be presenting in the CARE Workshop at Memorial University in St. John’s. Room A2065 in the Arts and Administration Building. Time is 3:00pm.

The topic is “How to Tax Families with kids? Putting Children at the Centre of the Analysis.”

The slides can be found here.

I’m honoured to be awarded the 2015 Doug Purvis Memorial Prize, given annually to significant writing on Canadian economic policy over the previous year.  The award recognized my C.D. Howe  Institute Benefactors’ Lecture “Tax Policy for a New Era: Promoting Economic Growth and Fairness” given in Toronto in November. I thank the selection committee for its work and I recognize the competition must have been fierce given the other high-quality articles I’ve read over the past year.

I’m glad the award will bring more attention to the main theme of the lecture: that our tax system both should and can strive to achieve greater fairness while at the same time encouraging economic growth.

I thank everyone at the C.D. Howe Institute for their support and encouragement throughout this project, along with the Chartered Professional Accountants of Canada who co-sponsored the Lecture.

In particular, from C.D. Howe I’d like to thank Daniel Schwanen who spearheaded the project, the top-notch expert committee which gave insightful and critical feedback that improved the lecture immensely, and finally C.D. Howe President Bill Robson who has maintained and deepened the Institute’s reputation for the highest standards  combined with an intellectual curiosity and openness to different approaches. From the CPAs, I thank Kevin Dancey for furthering the involvement of Canada’s accountants in supporting and contributing to policy discussions in Canada.

I’d also like to thank my colleagues at UBC’s Vancouver School of Economics. Recently, some have lamented the decline of policy-focused research in Canadian economic departments. In my experience, our School has leaned against these trends and made the VSE into a powerhouse for empirically-grounded economic and policy research.

Finally, I thank my family for their continued support of my efforts to contribute what I’m able. They make my work possible and worthwhile.

Synopsis of the Work

(The full lecture can be found here.)

The lecture is centered on a call to recast discussions of our tax system to consider both fairness and efficiency.

Over the past 30 years, the concentration of income among high earners (as noted by Piketty, Saez, Veall, and others) has increased across many countries, including Canada. A key feature of this trend is that employment income, rather than capital income is the main driver.

Moreover, our income tax system has not responded to these trends at the federal level, with no marginal progressivity at all within the income range of the top 1% of earners who have seen the most growth. This lack of progressivity may reflect concerns about the efficiency of taxing high earners, whether from tax avoidance or from displacement of real economic activity.

The lecture offers a proposed solution, borrowed from the Nordic countries: a dual income tax. Under this system, earned income would be taxed on a progressive schedule, perhaps more progressive than observed today. Investment income in contrast, would be taxed at a simple flat rate. (The C.D. Howe Institute made a fun animation to illustrate the idea.) This reform aims to increase confidence that economic outcomes are fair while at the same time ensuring the tax system encourages investment, in order to grow the economy of the future.

For some, this wouldn’t go far enough to address inequality; for others the consequences of taxing high earners more heavily might seem too severe. But I hope the lecture has, at the least, encouraged deeper discussion of how to achieve both greater fairness and efficiency in our tax system.

I’m presenting today at a conference organized by the University of Calgary School of Public Policy. The conference is about the Canadian personal income tax, and my presentation is about the rate and bracket structure that determines how progressive the PIT system is. The papers from the conference will eventually be published, but for now I’m just posting my slides and my script for the presentation.

Here are my slides.

Below is the script for the presentation.

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Script for Presentation at Calgary Tax Conference

April 16, 2015

INTRODUCTION

I’d like to get as many of you as I can interested in the progressivity of the income tax.

Many people care about the whole distribution of economic wellbeing.  Not just alleviating poverty at the bottom, but also inequality of economic outcomes between the middle and the top. They want the government to shape the distribution of income.  If you’re one of those people, I likely had you at ‘hello’.

Another set of people are worried about fairness of economic opportunities. Miles Corak argues that high inequality of incomes begets low intergenerational economic mobility. For these people, progressivity is good because it helps ensure fair opportunities for all.

Finally, a third set of people might not be interested in fiscal progressivity at all, arguing that fairness requires all citizens to be treated equally, with equal proportional fiscal impact.

If you’re in that third group, let me try to make a pitch to you as well.

We know that many elements of our fiscal system are regressive—like sales taxes, for example. If you want overall fiscal proportionality for bottom middle and top, you need a progressive income tax to counteract those other regressive elements.

So, to get overall fiscal proportionality, you need income tax progressivity.

CARTER

How should the income tax be structured to create some progressivity? Let’s start by looking at the Carter Commission report from the 1960s.

Carter is well known for its articulation of the comprehensive income tax base which tries to capture all forms of income and treat them equally–“a buck is a buck”.

Less well known is Carter’s design for a systematic approach to rates and brackets. This is important because the rates and brackets put in place in the 1972 reform–and lasting to today–look very similar to what Carter recommended.

Carter’s approach is based on a particular concept of ‘discretionary’ spending. Carter argued that what was non-discretionary depended on what others similar to you were doing.

This concept meant that someone making $90,000 who got an extra $10,000 in income would still have some element of ‘non-discretionary’ spending within that extra 10k. Maybe you had to buy a bigger house to keep up with the Joneses. The flaw in this reasoning, to my mind, is that the family benefits from that bigger house, whether they felt they had to spend the money or not.

Carter further argued that above 100k, all spending was discretionary.  Thus 100k threshold was argued to be the threshold for the top tax bracket since all spending was equally discretionary from that point onwards.

If you think this discretionary/non-discretionary framework is flawed—and I do—then the whole structure Carter created for rates and brackets collapses.

So, I don’t think we can use Carter’s system.

OPTIMAL TAXATION

Let’s move away from Carter and see if we can find any inspiration for the shape of income taxes in the economic theory of optimal income taxation.

For the first 25 years of the optimal income tax theory, from Mirrlees in 1971 until the mid-90s, policy makers found little useful in the theoretical developments. The optimal income taxes looked weird and looked like OHIO–zero at both ends and HI in the middle. It didn’t look like anything we had, or would want to have.

But in the late 1990s, work by Diamond, Piketty, and Saez revolutionized optimal income taxation by relating it to parameters we can estimate and observe. Here is what they developed.

The optimal tax formula tells us what the marginal tax rate should be at each level of wages. The essential tradeoff elucidated by the formula is between efficiency and revenue-raising.

In the formula, the LHS has the marginal tax rate for any given level of wages. Let’s imagine as an example, we’re talking about the marginal tax rate at $50K of income. So, what we’re talking about is what the tax rate should be for someone earning exactly $50K.

On the RHS, we can see the efficiency terms in the denominator. The bigger they are, the lower should be the tax rate.

First is the elasticity of labor supplying how much work effort is displaced by higher taxes. If taxes go higher, some of those people earning exactly $50K might decide to work a bit less.

Next is the wage rate and the number of people at exactly that level of wage. This tells us how much economic output is at risk of disappearing because of the higher tax rate.  If there are a lot of people at $50K we care more about the efficiency loss than if there are only a few people.

These are all in the denominator, so the bigger are these efficiency costs at any level of wages, the lower should be the tax rates for someone at that level of income.

In the numerator of the formula is a term showing us how many people are at or above this wage level. This tells us how much revenue we’ll get by raising the tax rate. If we raise the tax rate at $50K we get extra tax revenue not just from someone earning $50K, but from everyone earning $50K or higher.

The more people there are above the $50K point, the more revenue the tax increase will bring in. When a tax brings in more revenue all else equal, the formula says we should push that marginal tax rate higher.

So, the key trade-off here is between efficiency and revenue, and that is how I think we should discuss the setting of tax brackets and rates.

Three important and practical lessons for policy come out of the modern income tax theory.

First, there should be big transfers to those at the bottom, and they should be taxed back fairly sharply even if that requires high marginal rates.

Second, there should be progressivity between the middle and the top, and this progressivity should grow when top incomes grow more quickly than middle incomes.

Third, we can’t push these top rates too high without hitting the peak of the Laffer curve.  In the paper, I show data suggesting this peak is likely in the 60%-65% range, which means there is likely room for some modest increases at the top that will still raise revenue.

SIMULATIONS

To understand what out income tax looks like right now, and how it got to where it is, I present some simulations using my CTaCS tax calculator.

For these simulations, here’s what I do:

• Take 2011 income distribution from the SLID and CANSIM; inflate and deflate to dollars for the years from 1962-2015.

• Assume everyone is single; try with and without two kids. Trying to keep it simple; avoid the complexities of the Family Tax Cut.

• Only consider federal taxes and refundable tax credits—no spending side programs like UCCB or Family Allowance.

• Calculate average and marginal tax rates for federal taxes.

The first graph shows the evolution of the marginal tax rates for the highest earners. It shows the collapse of progressivity in the top one percent of the income distribution. In 1970, someone at the 99^th percentile faced a federal marginal tax rate of about 38%, whereas at the 99.99^th percentile it was about 60%. By 1982, that difference had collapsed to zero. So, our system no longer delivers any progressivity through the top of the income distribution.

The next graph shows the average tax rate across the income distribution for three different years, 1965, 1995, and 2015.

For 1965, taxes were zero for those at the bottom, then increased progressively until reaching those at the top, where the curve goes vertical, indicating a strong amount of progressivity.

For 1995, we see some negative average tax rates at the bottom. This is because of refundable tax credits, which are paid out even if no taxes are owing. From the 15^th to the 99^th percentile, 1995 taxes are just high everywhere, but do display some progressivity.

For 2015, there is a pronounced dip in the average tax rate for low earners, owing to the WITB. After that, the average tax rate is pretty close to the 1965 level until we reach the top 1%.

Now, let’s turn to what the system looks like today in 2015.

The next figure shows the marginal tax rate schedule for a family with two kids in 2015. The bumps and twists below $50K of income are generated by the WITB, the GST tax credit, and the regular tax brackets. Above $50K the CCTB is clawed back, and there is some progressivity in the rates.

When I look at this schedule, I wonder why so much of our thinking still revolves around the progressivity of the tax rates alone. The refundable tax credits clearly dominate the marginal tax rate schedule.

But, this isn’t necessarily a bad thing. Recall that the optimal income tax formula told us to tax back transfers quickly at high rates. The reason for this is the benefit of targeting; we save a lot of money by not paying the refundable tax credits for middle and higher income families.

Moreover, the efficiency costs of marginal tax rates for low earners are sometimes overstated. If workers care more about the ‘in or out’ decision than the marginal hours worked decision, then it is the average not the marginal tax rate we should care about. The chapter by Brewer Saez and Shephard in the Mirrlees Review gives a great overview of this ‘participation tax rate’ approach.

Finally, I show the ATR in 2015. It is sharply negative for many low earners. This pattern results from the refundable tax credits. For those of you who remember the old Family Allowance that paid $35 per month when canceled in 1992, let me tell you: this isn’t your mother’s baby bonus.

If I take the example of a single parent with two kids in BC, working full time full year at $12/hour, the graph shows the refundable tax credits she will get in 2015. This amounts to $662 per month, or about 32% of her wage income.  In addition to this, the family would get about $220 in UCCB, not included here. There is no WITB I this example because WITB is currently a very narrow tax measure that is fully clawed back at very modest incomes–so that it is completely gone even for a full year minimum wage worker.

To summarize what we’ve seen in the simulations:

• We have seen the complete elimination of progressivity within the top 1%, the income group that has seen by far the most income growth over this same time period.

• The rise of refundable tax credits has transformed the tax system for lower earners, especially those with kids. These tax credits have had a large impact on the incomes of those in the bottom quartile of the income distribution.

POLICY OPTIONS

To close my talk, I will go through four policy options that might push the income tax system toward more progressivity. I don’t necessarily recommend any of these options.  The goal here is just to assess what impact they might have on different parts of the income distribution.

I focus mostly on reforms that affect the middle and the top because the existing refundable tax credits have already pushed toward much greater progressivity at the bottom. There is a lot of room to consolidate these benefits to reduce complexity, of course.

These different options have different revenue implications. To get a very rough sense of magnitudes I take the Ready Reckoner from the Parliamentary Budget Office and add a dose of my known judgment.  The PBO numbers are meant for small marginal reforms, and some of my options are much bigger than that.

The first option is to increase the basic personal amount from $11327 to $20,000. This extends the ‘zero-rated’ tax bracket much higher, and would benefit everyone with income higher than the current $11,327 level. Since the credit is 15%, this amounts to a tax cut of about $1,300. The approximate cost would be $15 to $20B.

The impact is really large though most of the middle of the income distribution, but for higher earners it tapers out because $1300 doesn’t mean as much to their tax burden as it does to those at the bottom.

The second option is to increase tax rates at the top. For this example, I imposed new brackets of 35% at $250K and 40% at $400K. This reform gains revenue—it would result in a gain of $2 to $5B. By construction, this has no effect on low or middle earners. It does steepen the progressivity of tax burdens for higher earners.

The third example extends upward the tax bracket thresholds from $44,701 to $50K, from 89,401 to $100K, and from $138,586 to $250K. It would cost around $4 to $6B. It doesn’t have much visible impact, since the tax rate changes only in the overlap ranges between the old and new bracket structure.

Finally, I try lowering the rates in the two middle brackets to 18% and 22%. This would cost from $8 to $10B. It has an impact on median earners and higher.

CONCLUSION

My analysis began by trying to make the case for a progressive income tax, at the very least to counteract other regressive elements of the tax system.

I then argued that the Carter Commission’s bracket structure is hard to justify, yet the Carter structure was instrumental in eliminating progressivity among the highest earners.

Optimal income tax theory has become much more practical, and provides strong justification for progressivity between the middle and the top. The theory also provides support for the use of refundable tax credits at the bottom.

My simulations showed our tax system is doing pretty well at incorporating the refundable tax credits, but falling short on progressivity between the middle and top.

I offered some examples of reforms that could improve the progressivity between the middle and the top, finding very different pricetags on the different options.

I’m happy to hear feedback on this work and look forward to the comments by Dr. Sheikh.

I’m speaking tonight at a UBC Dialogue organized by the UBC Alumni Association on the topic of child poverty in BC. Here are some background notes.

First, here is a graph using CANSIM data showing the proportion of children living in families below the Low Income Cutoff and the Low Income Measure. The Low Income Cutoff is a line that was fixed in 1992 and has only been updated for inflation since then. In contrast, the Low Income Measure depends on how the median family is doing in Canada. So, if the median is going up, the Low Income Measure cut off line also goes up.

Children Living in Low Income in Canada

The lines show that progress on child poverty depends on what measure you might like to use. The LIM line shows that low income families with children haven’t made any improvements relative to middle-income families over the last 35 years. The LICO line shows there have been some improvements in real inflation-adjusted income over the last 15 years.

Here are my notes that I will draw from for the discussion.

A. Opening statement

I’m an economist; a number-cruncher. What I’d like to contribute tonight is to listen to the ideas, compassion, and energy of everyone here and help to translate it into policies that have a proven record of success.

The policy area I’d like to address is child benefits. You might remember the old Family Allowance we had until 1992 that paid about $35 per month. Things have changed.

We now have an extensive system of child benefits, ranging from the Canada Child Tax Benefit to the Universal Child Care Benefit to the Working Income Tax Benefit to the increments a family gets for the GST credit. If you add all of these up, they make a tremendous impact on the lives of lower-income Canadians.

For example, if you take a full time full year single parent, with two kids, working at $12/hour, she might earn about $25,000 per year. In addition to this, she would be eligible for about $9,000 per year–or $750 per month–in child benefits. That is a very large 36% supplement on top of her wages.

If I can do one thing tonight, I hope I can increase awareness of this system and start a conversation about how to improve it.

B. Case for child benefits

Child benefits directly address the problem. Child benefits aim to alleviate low income in families with children by transferring more income to families with children–this is a very direct way to proceed.

Child benefits are very large. For a single parent with two kids working FT/FY at $12/hour the current package delivers about $9,000 ($750/month). This is a 36% increase over her wages alone.

Child Benefits for Single Parent in BC

Child benefits help transition into paid work. Much evidence from many countries suggests that well-designed child benefit policies can provide a big boost for young parents entering the workforce. In the 1980s and 1990s, about half of single mothers worked. In the 2000s, this jumped by 40% in large part because of the new National Child Benefit Supplement. (See Milligan and Stabile 2007.)

Employment for Singles in Canada

C. Thinking critically about minimum wages.

There are lots of reasons people advocate for higher minimum wages, ranging from supporting workers’ rights, to gender equality, to improving the quality of jobs. But looked at strictly as an anti-poverty tool, I’m not convinced it is very effective.

Employment effects considered:  Critics of minimum wage often exaggerate the negative employment impacts, but in my view they shouldn’t be ignored. The best recent evidence, from David Green at UBC and Pierre Brochu suggests that higher minimum wages do have an employment impact on teenage workers, but not for those over age 20. (See Brochu and Green 2013.) Also, it does matter where the minimum wage is relative to average wages. As that gap closes, research suggests the employment impact can be greater.

Minimum wage is poorly targeted: Most low-wage workers do not live in low income families. Most low-income families do not have minimum wage workers. Many minimum wage workers live in families that are middle or higher income. There may be good reasons to increase the minimum wage, but as an anti-poverty tool, it really is fairly poorly targeted. (See Campolieti, Gunderson, and Lee 2012.)

Impact on prices: the money higher wages for minimum wage workers have to come from somewhere. If those wages end up in prices of goods consumed by lower-wage workers, it’s not clear if who benefits. As one example, if McDonald’s puts up the price of hamburgers to pay for the higher minimum wages, and if these burgers are bought more by lower income people, the overall incidence might not be progressive. (See MaCurdy 2015.)

I recently received an email from some graduate students at the University of Toronto asking for advice drawn from my experience from 1999-2000 with the Teaching Assistant strike by CUPE 3902 at U. of T. Below is an edited version of my response.

—–

I was sorry to hear that 3902 is out on strike again. I know that most members just want to get a good deal and get back to work.

In 1999/2000 I was the CUPE 3902 steward for the Economics Department and I captained a picket line for the duration of the strike. Throughout the process, I was quite vocal, within the union, about the need to be realistic about the negotiations–while aiming for the stars is certainly romantic, most successful unions improve their members’ lives through incremental gains.  This didn’t make me very popular within certain circles of the union, but I was there to represent economics TAs, not be a popular student politician.

During the strike, U. of T. made a new offer and a promise to implement a guaranteed funding package for four years for all Ph.D. students. These packages were already very standard for graduate programs in the US, but U. of T.’s would be the first in Canada. Within the union, some wanted to hold out until we had ‘made back’ all the earnings we had lost during the strike; others wanted to hold out for free tuition. In my view, it was time to declare victory and move on. I helped to organize the ‘yes’ movement to accept the recommendation of the bargaining committee, culminating in a lively, packed meeting at Convocation Hall. The assembly voted to send the agreement to a paper-ballot vote, which then passed. The strike of 2000 was over.

I see one very big difference between the situation in 2000 and the one confronting CUPE 3902 members now. In 2000, we were locked out simultaneous to our strike. This made our experience very different. There was very little enthusiasm for the strike in the Economics Department in 2000. Most students believed (in my view correctly) that the professors wanted the best graduate program we could have, which meant a strong funding package. For many of us, the idea that the University was our adversary or ‘enemy’ was hard to sustain. On top of that, many economists, whether by nature or nurture, tend to place high value on autonomous choice.

Putting these things together, I can imagine a lot of Economics TAs in 2000 would have found it attractive to ignore the strike and continue working. However, because of the lockout in 2000, we never had to make this choice. In the present strike, I’m sure that being confronted with a choice about whether to go back to work makes the situation substantially more difficult for everyone.

I learned three important lessons during the strike of 2000 that I’ve carried with me since. Because of the differences with the current strike, I don’t know how relevant my experiences will be. But, I will share these lessons just in case some find it helpful.

First, although I disagreed with some of the decisions made by the union, I respected the decisions of the majority (and the elected leadership). I found that walking the 6am picket line every morning in temperatures of -20 degrees bought me a voice within the union. The lesson: when you respect a democratic decision, even (or especially) when you disagree, you will find people more willing to listen to you next time around.

Second, I learned during the strike that TAs in many departments were much worse off than Economics. In Economics, TA and RA work was plentiful, and employment prospects post-degree are quite good. This is not so elsewhere in the University. Understanding this better made me appreciate why others felt so strongly about the need to strike and viewed the University in a different light.

Third, Mikael Swayze (CUPE 3902 staff in my day; now works at UofT Labour Relations) often said to me, “Kevin, we have to remember that strikes always end.” With that, he was saying that you need to think about what the ending looks like, how to build a path to it, and how you and your peers will look back on your actions during the strike. This mindset served me very well during the strike, and in many situations since.

As a final note, I’d like to address the particular concern raised in the email–whether respecting the strike would have negative consequences for a Ph.D. student’s career. I am very sure the answer is ‘no’, both from my experience then and my 15 years of experience since as an economics professor. Whether an economics Ph.D. student decides to participate or not participate in the strike will almost surely have no impact on their academic careers.

The CUPE 3902 strike of 2000 was intense for all of us who were involved, and I’m sure it feels the same to you now. I hope you get a good settlement soon and everyone can get back to work.

Good luck!

Kevin