Paul L. Caron

Tuesday, December 19, 2006

A Christmas Gift Tax Credit?

Andrew Coyne proposes a Canadian Christmas Gift Tax Credit:

Give a gift to charity, some faceless telemarketing operation about whom you know nothing, and you get a tax credit. But give a gift to your own child, and it all comes out of your pocket. Buy that child some groceries, and the purchase is exempt from tax. But buy him a book, a CD, or a remote-controlled monster truck — gifts that can last a lifetime — and the tax collector’s bony hand has first dibs on the joystick. It’s time to correct this outstanding anomaly in the tax system.

As any parent can attest, Christmas presents are not a discretionary expense: only those without either children or a heart would think otherwise. Yet unlike other necessities, no provision is made for this in the tax laws. That’s especially hard on poor families, struggling to keep up with middle class expectations of how Christmas is supposed to be. But even middle class families often run into trouble....

Equity considerations aside, there are good arguments for introducing a tax credit on the purchase of Christmas presents, on efficiency grounds. I’ve already mentioned the crucial role played by the retail sector: at roughly 25% of GDP, it is one of the “engines” of the Canadian economy. Add in the inevitable spinoff benefits and multiplier effects — studies have shown that for every dollar spent on retail sales, three more are spent elsewhere in the economy — and it is clear: the question is not, can we afford to give every Canadian a tax credit on Christmas presents, but can we afford not to?

(Hat Tip:  Timothy Fitzsimmons.)

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