On relative expenses

Stephen Gordon is once again criticizing the NDP's home heating proposal. But let's set the record straight on one part of the analysis which is highly misleading, and note that the philosophical issues aren't as clear-cut as he wants to make them out to be.

To start with, let's deal with this claim:

It could be argued that the gains for low-income households are proportionately greater, because the inequality in income is greater than the inequality in benefits. But using proportional gains as a criterion strikes me as setting the bar too low: even George W. Bush's tax cuts manage to make it over this hurdle.

But there's an important distinction in how to handle "proportional gains" - and it makes for a crucial distinction in who's helped most by the NDP's home heating plan.

Gordon links to an article framing Bush tax cuts based on the proportion of total taxes paid, with absolutely no reference to their effect on household income. (In effect, the standard is more "proportional losses" in taxes paid than proportional gains in anything.)

But when one looks at the effect on after-tax household income - which would seem to be the point if one's intention is to deal with actual effects on household activities rather than merely resentment over the amount of taxes paid - the effect is rather different:

Without a doubt, and despite White House rhetoric to the contrary, the direct effect of the tax cuts is to widen after-tax income inequality. If the tax cuts are extended into 2011, after-tax incomes will increase by more than 9 percent for households in the top 1 percent of the income distribution in that year, by between 2 percent and 3 percent for households in the middle 60 percent, and by only 0.1 percent for households in the bottom 20 percent.

So let's apply the same analysis to the NDP's plan. Using the midpoint numbers for each income level on the NDP's chart noted by Gordon and presuming that 5% tax will be removed from home heating costs, the numbers are as follows:

A household with income of $15,000 sees its heating bill reduced from $1,678 to $1,598.10. It saves $79.90 in cash, or 0.53% of its annual income.

A household with income of $45,000 sees its heating bill reduced from $2,041 to $1,943.81. It saves $97.19 in cash, or 0.22% of its annual income.

And a household with income of $75,000 sees its heating bill reduced from $2,400 to $2,283.71. It saves $116.29 in cash, or 0.16% of its annual income.

Again, the above isn't to say that the NDP's plan couldn't be improved. But to suggest that it bears any meaningful resemblance to the Bush tax cuts in its relative effect on households is far off base.

Meanwhile, Gordon also draws a distinction between income issues and pricing issues, once again saying "give money to poor people" without defining the term or recognizing the political difficulties with that course of action. But that brings us back to the point about essential goods that Gordon has given up on addressing when it comes to other goods not subject to the GST, but seems bent on applying at every opportunity in response to the NDP's plan.

Like food, housing and other essential expenses, home heating costs are an expense borne to a relatively similar extent by households across the country - and as is obvious from the chart above, representing a far higher proportion of expenses for poorer households. And it's different from higher-end goods where one might in fact see consumption taxes as playing a positive social role.

But what about the possible social costs of bringing down the price of heat? Gordon rightly notes the issue of greenhouse gas emissions, which may indeed be impacted by heating costs to the extent people actually use more heat rather than using the savings elsewhere. But as usual, he leaves out the fact that the NDP's plan deals with that expressly by including a home retrofit program intended to improve efficiency in the longer term.

Which means that the main effect of the NDP's plan taken as a whole is simply to make one essential good less expensive in comparison to all other goods. And that process on a larger scale looks to me to be the idea at the core of an affordability agenda which makes it easier for Canadians at all income levels to pay for the basics they need to live in Canada.