A Santa incentive
The statistics tell the story. Retail sales, excluding autos and gasoline, came to more than $250-billion last year. Of that sum, more than one dollar in five, about $55-billion, was transacted during the holiday season. The average Canadian spends about $900 on Christmas presents each year, or roughly $30-billion altogether: more than annual sales of tobacco, alcohol, and lottery tickets, combined.
Viewed one way, this heroic consumer performance makes a signal contribution to our continuing prosperity. Viewed another, it imposes a heavy financial burden on the average household, the equivalent of two week’s pay. Yet notwithstanding either, the Canadian shopper is left to bear this onerous responsibility alone. Expenses incurred for medical care are eligible for a tax credit, as are tuition fees. The cost of child care is similarly defrayed in part, along with elderly care. After the last budget, the same now applies for children’s sports and bus passes. But Christmas presents, our culture’s most tangible expression of filial love, must be purchased out of after-tax dollars.
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.
How many personal banktruptcies have been triggered when the credit card bills come due in January? How many families have been torn apart by the arguments that ensued? What other expenditures are households cutting back on to pay off the Christmas mortgage?
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?
Bear in mind, also, that many of the most popular gift items are in areas of emerging comparative advantage for Canada, like fashion, video games, and wine. It’s entirely possible that with the help of a timely tax credit, Canada could achieve strategic dominance in one or more of these strategic sectors. (Note: This is not a subsidy. It is non-repayable tax assistance.)
But of course the clinching argument is simply that it is the right thing to do. Governments have long used the tax code to discourage some sorts of behaviour — smoking, drinking, working — while encouraging others: fitness, gambling, certain types of oil and gas extraction. Should they not also find it in their hearts to encourage that most agreeable of human activities, exchanging gifts? How can you put a price on a child’s smile?
Indeed, there is reason to believe that Canada is significantly under-gifted. Casual empiricism suggests there are large positive externalities associated with Christmas. The child who finds a bicyle under the tree is far less likely to exhibit a range of social pathologies later in life, from unemployment to pattern baldness. Yet the well-known “free rider” problem may lead to fewer bicycles being found than is optimal.
Consider a multi-player game in the Edgeworth-Bowley outcome space. A may believe that B will give a gift to C (or, perhaps, c). Conversely, B may believe that A was going to pick it up on his way home from work. A may reply that B never listens, that he told her he had a dental appointment. In such cases, no Nash equilibrium is possible. A tax credit may be just the thing to bring A and B to their senses.
It might be objected that any credit on purchases of Christmas presents would be cancelled out by the taxes needed to pay for it: that in essence all we would be doing was redistributing income from everybody to everybody. This ignores an important subgroup of taxpayers: those who do not buy gifts for anyone, who would thus be underwriting all those who do. Think of it as a tax on Scrooges.
I recognize there are a number of design questions that will have to be hammered out before such a scheme could be implemented. What counts as a “Christmas” gift? What counts as a “gift”? Why Christmas and not other religious holidays? Why presents and not other Christmas regalia? But precedent suggests these are not insurmountable. (Why a tax break on groceries, after all, and not take-out meals?) Set beside the chance for governments to contribute, in whatever small way, to bringing families closer together, they are surely trivial. Let not the perfect be the enemy of the good.
As a bonus, for anyone reading this in the Prime Minister’s Office, a tax credit for Christmas presents would allow the Conservatives to position themselves as the pro-Christmas party, while painting the Liberals as being against Christmas. Also children.
Space does not permit going into some of the other advantages of this proposal, whether in terms of regional development, global warming, or national security. But I will say that if you believe one word of what I’ve written here, you’re in even greater need of a Christmas holiday than I am.
12/16/2006
