The Munk Debates Podcast - Munk Dialogue with Andrew Coyne: irresponsible tax cuts on both sides of the border

Episode Date: July 10, 2025

Another week brings another tariff threat from the Trump administration, without clarity on who is being targeted and for what reason. Andrew argues that the media must resist applying normal rules of rational behaviour that you would expect from any other presidency. Trump is becoming increasingly erratic in his second term and must continue exceeding expectations with his bad behaviour to satisfy himself and his followers. Meanwhile his Big Beautiful Bill includes tax cuts that will add billions of dollars to America's debt, an irresponsible fiscal plan that mirrors Mark Carney's tax cut plan in Canada. Why are governments around the world happy to increase debts and deficits at the expense of the long term health of their economies? Andrew and Rudyard agree that to increase productivity in Canada we need more investment which comes from tax reform and bringing down the top marginal tax rate - something no government wants to do.  Become a Munk Donor ($50 annually) to get 72-hour advanced access to the full length editions of Friday Focus and Munk Dialogues. Go to www.munkdebates.com to sign up. Hosted on Acast. See acast.com/privacy for more information.

Rudyard Griffiths here, the chair of the monk debates. Welcome to our YouTube channel and podcast feed. A real pleasure to continue our weekly conversations with Andrew Coyne. He's a celebrated columnist at the Globe and Mail and best-selling book author. Andrew, great to be in conversation with you again. Good to be with you. Getting tons of feedback on these exchanges, Andrew. I'm thrilled to see the reaction on YouTube. All the comments and engagement is just great. And let's start with this guy. on the screen, I just had him up for our YouTube listeners. Yes, that's Donald J. Trump, President of the United States. Andrew, another kind of wild week on the terror front. I'm just wondering what your thoughts are on this. We've kind of gone from the cataclysm of Independence Day back in April to a big walkback, a taco by President Trump on a lot of these things. And now seemingly, since we last talked, a new set of tariff threat. It's arbitrary, hard to understand which countries are being selected and why, hard to figure any methodology to the calculation of the tariff rates.

What's going on here? What do you think is at play? Well, you remember the original calculation of the rates for the quote-unquote Liberation Day was they, I think it was they just took the size of the trade deficit and then divided it by some X factor and that was the tariff rate. So it was based on nothing, in other words. Of course, it took no recognizance of what was the source of the trade deficit. In some cases, it was trade, quote, unquote, with an island full of penguins. You know, it was just what happens when you do things by Roach and by mathematical formula that don't have any connection to reality. So, fast forward several weeks for months, and supposedly he was going to sign 90 deals in 90 days.

Everybody was going to come up to, they were all begging to be admitted into the U.S. trade zone. and they were all calling them up with tears in their eyes, et cetera. And after 90 days, they really didn't have any deals. They had three sort of deals that were looking like frameworks but weren't binding on anybody. And when they were asked about it, they said, well, you know, nobody's been sending us emails. We're, you know, we're out of touch. So the whole thing's been far school. Then they recalculated a new set of tariff rates that looked a lot like the original rates,

except maybe one percentage point this way or that, based on nothing. There was no explanation as to what the figure was. So you always have to remind yourself with these guys is do not apply any normal rules of logic or rationality or behavior that you expect from any other presidency. We have to keep reminding ourselves of that. And I see this all the time in our news coverage and analysis is people keep trying to apply a normal lens as though this must be what's going on and there must be some underlying rationality to it. Because we just don't want to believe that these are a bunch of fools who don't know what they're doing. doing. And yeah, as you say, you know, yesterday it was a 50% tariff on copper. Yeah. Where did that come from? That's going to be great for American competitors. You know,

I can't imagine there's any products that are made in America that might use copper in their, in their machinery or their wiring. So it's, it makes it very difficult for anybody to know how to react to it. As I've said before, I think it places a premium on countries working together rather than being picked off one by one. And maybe that's in a sort of way what people have been doing. They've just been kind of waiting them out because there certainly is no percentage point, frankly, in getting into negotiations with them. You get, you know, you get a bunch of things you can't really count on them being there

the week afterwards. Yeah, I wanted to pick up something that you just said there because our mutual friend David Frum, who appears over on the Hub's podcast feed and YouTube channel, talked about a very same thing that decision makers, elites in Canada, for example, understandably think that the world's a rational place, that the world functions according to a set of prescribed parameters and presidents and in administrations and governments, you know, talk about trade and have agreements and move forward or not to some kind of sense of how they will proceed together.

And I think you bring up this point. David has also that, Andrew, are decision makers like making a bad decision? Are they making maybe a not unimportant miscalculation by assuming somehow that they are in fact having a negotiation in the terms of which any normal negotiation would have unfolded? And it's just, it's not the case. There's a case sometimes for pretend negotiations where you are buying time, you are going through the motions diplomatically so that you're not unnecessarily getting up as snoot where you don't necessarily make large concessions. I mean, we made a quote-unquote concession on the Digital Services Act.

It was a tax we should never have imposed. I think anybody sensible knew it. So it wasn't a huge concession in that regard. But, you know, it makes it very difficult diplomatically as well, you know, just in terms of pure diplomacy. The president of prime minister relations are very important, but they can't always. be overestimated and there's a school thought that says, you know, if you want to get things done in Washington, you've got to go through powerful congressmen or, you know, powerful governors, et cetera. It's really hard to know who, if any of those people have any kind of leverage with

Trump, hard to say any of them do. Even the people around Trump, your cabinet ministers, your advisors, et cetera, he's so mercurial in his allegiances that the person you would have thought a week ago was as close as advisor the next week is a bum. He's completely a while. He's completely idiot, why did I ever hire? Elon Musk? You would have thought, exactly. You know, two months ago, you would have thought the way to Trump's year is through Elon Musk. Now they're mortal enemies.

So it just presents in every conceivable way, an absolutely unprecedented situation. You know, you look at the lineup of cabinet ministers there. And in almost every case, or certainly in a half a dozen really important cases, they're literally the worst people you could conceive of hiring for that job. there's a dynamic here where that's what Trump does. He doesn't just get somebody who's inadequate or, you know, the usual occasional dimwits that other presidents have appointed, you know, that a crony or something. In his case, it's what would be the worst possible Secretary of Defense I could find? What would be the worst possible Director of National Intelligence?

FBI? Let's get a, yeah, exactly. You know, who would be the worst possible to be my director? And lo and behold, you know, the stories start coming out that they are indeed the worst possible. They're way over their heads. They spend their time either in Pete Hags' case, you know, working out at the gym. They're obsessed with leaks and people talking and saying bad things about them. It's as if we put a bunch of high schoolers in charge.

And you get the results that you would expect from that. Andrew, when we think about the last six months or so with this president, do you share the feeling that I have, that his behavior seems to become increasingly erratic as the months have rolled on, that his emotional state seems increasingly volatile. And look, in some fairness to him, he is an older man. This is an exceedingly demanding job. I mean, he's rolling into the office supposedly around noon every day, but regardless, I'm sure there are pressures that he feels, whether it's national security, maybe not so much, but the pressures of Twitter, the pressures of the stock market, whatever. Do you share this concern, Andrew, that possibly we're seeing

an individual that is not bearing up under the strain of this second presidency and is becoming increasingly erratic? Yeah, I think he's been becoming increasingly erratic since he's been on the scene. I think it's a long-term spiral. It may be an accelerating. spiral. I certainly would think that age would be part of that. The demands of the office would be part of that. But this is not a particularly stable individual to begin with. He has multiple personality disorders, including a quite malignant narcissism, you know, add to that really quite profound ignorance on a range of subjects that are every now and then come out in interviews and you just cannot believe what you just heard. So you add all these things up. And the biggest single thing is

that kind of an oppositional defiance disorder that he gets a charge and more importantly, his followers get a charge every time they cause outrage, every time they get people like me hopping up and down and saying this is the worst thing I've ever seen. The problem for him is, is kind of the flip side of the problem for us covering him. The problem we've always faced covering him is he does so many things in a day, any one of which would have ended the career of any previous politician, quite literally, that he gets a kind of a volume discount. First of all, We just can't keep track of it all. And you get numb to it and you start pricing it in that, okay, that was bad, but it's the sort of thing we expect from him.

At least he didn't exceed expectations for how terrible his behavior is. So that is an advantage to him. It allows him to get away with all kinds of stuff. But if you're looking for that charge, that outrage, that dopamine hit from making received opinion annoyed, then it's a problem for you. And what it means is his behavior has to get continuously worse. he has to continuously exceed expectations of even for himself. And he needs that hit. His followers need that.

He needs it psychologically, I really think. So, yeah, his behavior is worse now, much worse. The things he says and does now are worse even than during the recent election campaign, which most people thought they'd never heard anything as bad from him until that election campaign, which was worse than anything previous to that in the years prior to that, which was worse than when he was the president. the first time, and his behavior in conduct during his first presidency was way worse than the worst critic could have imagined during that first election campaign. So it's not coincidental,

I think. I think there's a dynamic built into this that his behavior is going to get worse and worse and worse, and we're going to look back to the present day in some month's time and say, oh, boy, I wish things were as normal as they were then. Yeah. Just to kind of bring this discussion full circle, Andrew, tariffs in some way are hardwiring into this, aren't they? Because they provide him with this ability to command our attention, which I think is, again, one of his kind of key, maybe it's the aspect of the narcissistic personality disorder that you just diagnosed it. I mean, it's one of his key kind of needs is to command our attention. And I guess if you're advising the Canadian government and you're thinking about things, maybe in a more psychological way than some of our

our leaders and, you know, I'm sure amazing bureaucrats in Ottawa kind of think of these things. But if you want to apply more of a psychological analysis and you say, look, our interlocular here is motivated by attention. Tariffs are, he's discovered these things in a second term, unfortunately called tariffs, that caused the world literally to stop when he tweets and when he opines on cable television or in front of reporters. How do you manage that? How do you think about it? How do you think about that in the context of, in the case of Canada, managing this really important bilateral relationship that is kind of critical to the future of our economy. Well, the good news is he's also weak and easily rolled. We've seen time and time again

across a number of policy fronts where he brings in one policy one day and then reverse his course the next day under pressure. So, you know, one of his minions decided they were going to stop sending patriot missiles to Ukraine, apparently didn't consult Trump on it, or so Trump says, and so now they're back on. Or, you know, they were going to round up every illegal migrant working in the farms. The farmers started protesting. We don't have enough workers. Suddenly, he reverses himself on that. You know, you can go down the list, you know, and on tariffs, when the bond market went bananas, he was spooked, and he did go back. So if you apply the right pressure point, it's not like he's this kind of iron chancellor who can't be moved and has a mission of the future, etc.

He certainly seems, I'll give them this. It's very hard to discern that Trump believes really in anything. He does seem to believe in tariffs. He believes in them for mutually contradictory reasons. So he believes in them because they'll protect American manufacturing, but he also believes in them as a bargaining chip where you can remove them and therefore they're not protecting manufacturing. He believes them as a revenue raiser, but he also says that nobody's actually paying the tax. There's a lot of mutually contradictory arguments that are going on. But he does seem to think that they're the key to economic advantage because he does truly seem to believe that the trade balance is the measure of a country's wealth.

I mean, it's as if Adam Smith had never written anything. And we were back in the 17th century of, you know, a high water mark of mercantilism, and we were trying to earn gold for the King's treasury. So, you know, if I were in the unenviable position of trying to anticipate or think through what can affect him, set off the top, I think playing for time is a valid exercise here because every day that goes by, his approval rating goes down. but also, you know, recognizing and remembering that he does not have infinite weaponry here. He likes to talk about how we don't have the cards, et cetera.

Well, he's only, the only cards he's got are cards that hurt Americans. And he wasn't elected to hurt Americans. He was elected to hurt other people. I mean, it was, you know, they wanted them to beat up on illegal migrants, et cetera. But time and again, throughout this still very brief presidency, he's been doing things that step on core Republican constituencies. and he's feeling it. And he's way down now in the approval ratings. And as some have said, you know, it's hard to interpret his behavior, again, in any kind of rational basis.

If you were looking at the midterms coming up and you plan to contest those midterms as fair elections, by any conventional standard, you'd be saying, I need to really change course because my party's going to get annihilated in these elections. So some have interpreted that as meaning, you know, we can't take for granted. We're going to see free and fair elections in 2020. If you're enjoying the Monk Debates podcast, come over to our website at triplew monkdebates.com. That's MUNK DebateswithanS.com and check out our free monk membership. As a complimentary monk member, you get all kinds of great perks and benefits, access to our weekly email, summarizing our best debates, and ticketing privileges at our main stage debates, special news, information, and offers all courtesy.

of the Monk Debates. You can grab your complimentary monk membership again right now at triplew monkdebates.com. Simply look to the top navigation on the website and follow the links. Thanks in advance for joining our community. Let's in our remaining moments kind of pivot this back to Canada. Let's do that through this big beautiful bill act. God, they all have really stupid names these days, don't they? Which was Trump's huge set of tax cuts that will act. add trillions to the U.S. debt over the coming decade. You've written an interesting piece yesterday on the kind of challenges that the new government in Canada has put to civil servants and ministers to kind of begin, you know, efficiency cuts,

maybe deeper than just efficiency cuts federally. Those come on the back, though, of a significant tax cut that Mark Carney engineered as of July 1st to the tune of billions of dollars, his so-called middle class. tax cut. What do you make of this, Andrew? All these countries around the world that seem to be buying growth, right? They seem to be really interested in debt and deficit spending. They don't seem to be too interested in raising tax revenue to do real and necessary things, like in the case of Canada, rearming our military after a quarter century of neglect. Are there some parallels, maybe some uncomfortable parallels in a way between Canada and the United States in terms of how

we're managing or frankly not managing our respective fiscal houses. Well, that's an interesting question. There's a combination of things going on there. Let's talk about the Canadian tax cut, first of all. It's a tax cut that really doesn't deliver much in the way of actual results. If you're trying, let's put it this way, we have a serious and profound productivity crisis in this country. To get productivity to grow faster, we need more investment. To get more investment going, we need to get a tax rates. down, but not the tax rate at the bottom, but unfortunately, politically, the top marginal tax rates are more key for that because that's where the money is, frankly, that's going to invest.

So the third rail that nobody wants to touch in Canadian politics is bringing down the top marginal tax rate. That should not be taboo at this point. It's over 50% combined in federal provincial. It's much higher than, particularly when you look at the level of income, it cuts in in and than most of our competitor countries. But it's become this kind of thing you can't talk about the last time the top marginal rate was brought down, it was in the 1980s. Now, that doesn't mean that the top taxpayers don't benefit from this tax rate. That's what's so perverse about it. They've cut the top, the bottom tax bracket, but the rich benefit from that is much or more

than the poor do. Because they fill that whole bracket. They're guaranteed to be in the brackets above it. But it's money they've already earned. It's not their marginal. It's not the next dollar that they're thinking of earning. It's money they've already earned. that they're getting a free, you know, a windfall gain on.

So it's perverse from that standpoint. It makes no, it's not going to make any difference to incentives to invest or incentives to work, again, at that low level of tax rate. It's just basically a drain on the Treasury, I think extremely ill-advised. The American one is extremely ill-advised from a fiscal standpoint. It's a huge drain in the Treasury as well. But at least they're going to get some benefit, some kick from it in terms of incentives to invest, et cetera, and making their more competitive.

I think they could have done that in a way that was more fiscal responsible by true tax reform, by spreading the tax net wider and getting rid of a lot of tax loopholes and preferences that upper income individuals particularly do well from. Anyway, so I think they're both irresponsible, but in slightly different ways. But for us in particular, given the fiscal challenges we're now facing at the federal level where we're already a deficit of $60, $80 billion, whatever the latest estimate is, and now we're proposing to basically triple defense spending

over the next 10 years. That is a severe challenge. It's the worst time at all of all, it seems to me, to be making needless tax giveaways that aren't going to pay off in any kind of increased economic growth. But it does mean is, and you're not going to be able to finance

a permanent increase in defense spending, because that's what we're looking at. that here. This is not a, you know, wartime, World War II mobilized, then demobilized after the war is over, in which it makes sense to borrow for something as short term as that. This is a permanent, semi-perman anyway, change in our defense posture and in the amount of our resources as a country that we're devoting to that. So you can't really finance that by increasing borrowing. And if you think you're going to do it from just raising taxes, you know, everybody, every politician's in favor of raising taxes on other people.

So you'll get people say, yeah, well, raise taxes on the rich. You're not going to raise the kind of revenues you need to finance that level of defense spending just by raising top marginal tax rates. At that point, you're looking at either a rise in general income tax rates or a rise in the GST, which people have proposed. And that's the least irresponsible proposal in terms of raising taxes. But what this exercise that they've now begun that you pointed to off the top, signals is, look, per capita after inflation, spending at the federal level is higher than it's ever

been by, you know, significant margin. There was a huge run-up in spending during the Trudeau years. So there is clearly room to rationalize and cut back and get us back to levels of spending that, you know, per capita that are more in tune with where we were even 10 years ago. You're not going to get that by simply issuing people fewer paper clips. It's going to be, it's going to mean more actual questions about, does this program work? Should we have ever set it up in the first place? Are we duplicating things that are being done at other levels?

And the letter that the finance minister sent out to his fellow ministers talks about this. And all that is great. You just kind of wonder, shouldn't you be talking about that and thinking that way all the time anyway? Why does it take a fiscal crisis before we ask some of these searching questions? But never mind. So they're talking about getting programs spending in pursuing.

in three years, 15% from. That is not insignificant. That will take some serious choices to be made. But it's also not the end of the world. I don't think it really compares to the exercise we went through the line. I mean, it's because we've been since then. But, you know, the late 90s exercise, some of those government departments had their budgets cut in half.

And I'll be very surprised if we see anything comparable this time. No. You mentioned tax competitiveness. And I guess what I'm struggling a little bit is, is I see a bit of a box forming around the Kearney government. You know, again, these were, this was an irresponsible budget bill instead of deficit and debt financed tax cuts in the United States. But they will significantly, Andrew, increase America's tax advantage that was already growing over Canada. They have, for example, in this bill, in the American bill, created the American bill, created the, the ability for companies that are, you know, building a new factory or investing a new

capital plant to book all the depreciation costs associated with that in a single year, in a single tax year, as opposed to amortizing that over, I don't know what the rules are in Canada, but over many, many, many years. So if you have capital, even if you're in Canada and you have capital, the United States becomes just an even more attractive jurisdiction. Again, for wrong reasons that may not be sustainable, that may cause a fiscal or debt crisis in America at some time in the future. But our problems are right here right now. So Mark Carney, in a sense, it might be the responsible thing to raise taxes to fund this increased deficit spending and to maintain all the liberal transfers to individuals and provinces, which he indicated in the election that he was going to maintain Justin Trudeau's care economy, daycare, health care, pharmacare. it's a big list.

And in a sense, where does he go now? Because Trump in some ways has pulled away, I think, some of the room to raise taxes. And as you say, it's not clear to me in the liberal coalition that he's assembled that there's much of any appetite for cuts, for cuts to programs, for cuts to the care agenda, the care economy that was, in a sense, the legacy of the Trudeau years and seems fairly baked into a liberal party that is more progressive than it was in the time of Kretje and Martin. So do you see that too? Do you see a kind of a bit of a political and economic box forming up around Carney?

And if so, how does he break out of it? He breaks out of it through tax reform. And there is consistent consensus on this that's been building for many years that, you know, after 30, 40 years after the last significant tax reform, it's time. It's tricky. it's very easy to get tax reform wrong. Usually you get it wrong when you're too timid and you don't, you don't make your, you don't make bold enough changes. The reason being, if you just change one or two things, then you usually, you've only got people who lose from it and very few people who are winning from it. And we saw that, for example, with the attempt to change the, the taxation from small

businesses during the, during the first Trudeau government. It wasn't, you know, crazy reform, but it was really badly designed politically. When you do more sweet, tax reform with where, you know, everybody's ox gets gored, but everybody benefits from lower rates. I think it's easier. It's more ambitious, and usually people in politics are averse to being too ambitious, but I think it actually turns out to be the more politically astute thing, that you're better able to get the tradeoffs and get enough people who are benefiting from the exercise to carry you through politically. So, and a lot of these preferences and deductions and exemptions that any economists will tell you are distortions that

They get people investing not for the real economic returns from an investment, but just for the string of tax goodies that are attached to it. It would be great to get rid of these on their own. But if you can do that and also cut tax rates, then you can see to that competitiveness angle without a loss of revenue. So it's a win, win, win. You know, you remove distortions. You get tax rates down, but you do so in a way that's fiscal responsible. I think there's room to do that both on the personal level and on the corporate level. I think it's particularly important in the corporate level because, you know, capital is so mobile that if you're not, you know, somewhere within a hailing distance in terms of tax rates, you're going to pay a price. Again, we've got such a premium in this country on getting our investment rates up that, and tax rates are the, you know, the classic barrier to investment, that I think we need to be very bold on that front in particular. I think we need to send a signal to the rest of the world that we really intend to get down to business here. We recognize the vital role in investment plays in productivity, in growth, and we're going to do what it takes to attract it.

And so you talked about, you know, in the U.S. we're talking about, you know, first year expensing of investment. That could be part of an even larger reform in Canada where you basically move the corporate tax off of income as a base and onto cash flow. It gets a little into the weeds for a discussion right here. But that can be a much more powerful thing than just reducing tax rates. If you can really significantly alter the whole basis in which you are taxing corporations, then it pays off not just in incremental terms as better policy, but as I say, it has that signaling effect that I can't quantify, but I would suggest is really important in alerting investors around the world

that this is a place that you want to locate an investment. And we really need that at a time when Trump's munking around with things like tariffs because people are going to be scared that, oh, I need to be behind the U.S. tariff wall, to have any chance of competing in the U.S. That's not necessarily the case. It depends on a lot of other factors. It depends on tax rates, depends on exchange rates. And if we can make ourselves competitive enough on the tax front on some other fronts,

then it will still pay people to invest here, even with the U.S. tariffs. Well said, Andrew. I certainly hope people are listening. It's been 30 years. You're right. It's too long. And it needs to be sweeping. We need to kind of reawaken the animal spirits in the country.

in terms of investment and entrepreneurship. We're seeing like a collapse in new business formation. We're seeing record numbers of business exits. You know, there's something more than just like scleroticism in the Canadian economy right now. And we kind of need to get jolted. We've not had enough investment in recent years to replace capital as it wears out and depreciates. So capital stock per worker has been declining. The CD-HAL looks at this.

the first time they can recall seeing that. So it is a serious, serious, as well. You're literally scratching your head on our YouTube channel. I will say goodbye to you. But before I do, Andrew, as a bestselling author, I will advise you in future to have on your bookshelf behind you, which is in this lovely shot that you're giving us, a copy of your book in profile.

I'm new at this. Hey, that's better. You're absolutely right. What was I thinking? The Crisis of Canadian Democracy, everybody. Andrew's new bestselling book, get out there, buy it. It's a terrific read. Okay, Andrew, get that up on the bookshelf for next time, okay?

We'll do. Okay, we'll talk to you soon. Bye-bye. Ladies and gentlemen, thank you for watching this and listening to this latest edition of our conversations with Andrew Coin, celebrated columnist at the Globe and Mail. And yes, best selling author of a new book. Check it out on Amazon and elsewhere. Indigo, too. That's a great Canadian company.

Please, if you're watching this on our YouTube channel, subscribe. Click on that little notification. bell and you'll get our next video delivered to you asap. If you're all over on our podcast feed, we'd love reviews. Stick a review. We read them all carefully and we really appreciate your comments. And if you're not already a member of the Monk Debates community, head over at our website, www.w.munkdebates.com. Grab a membership. If you're Canadian, you get a tax deduction for that. because we are a charity committed to civil and substantive discussion and debate about the big issues and ideas changing our society. I'll talk to you again soon.

Until then, Rudyard Griffith saying bye-bye. The Monk debates are a project of the Aurea and Peter and Melanie Monk charitable foundations. Rudyard Griffiths and Ricky Gerwitz are the producers. Be sure to download and subscribe wherever you get your podcasts. And if you like us, feel free to give us. us a five-star rating. Thank you again for listening.