Corporate tax cuts — Part 2

Lana
Lana Payne
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As is so often the case with the Harper Conservatives, ideology trumps reality. The facts are secondary to political spin and the truth is buried under piles and piles of talking points and message boards and taxpayer-financed advertising.

That is certainly the case when it comes to their rationale for another round of corporate tax cuts.

Coinciding with the federal government’s defence of this latest corporate giveaway is a $6.5 million advertising campaign peddling their tax-cut agenda. 

I despair at this real misuse of public funds. While $6.5 million is a small amount of money considering the size of the annual federal budget, we all know that it is money that could be better spent.

The government’s contention that an additional $6 billion in corporate tax cuts is the best way to create jobs is predictably supported by many business groups, but not so much by the facts. As a reminder, between 2000 and 2011, the federal corporate tax rate has been reduced from 28 per cent to 16.5 per cent. It will be slashed again in 2012 to 15 per cent.

Last week, in response to my column of the week before, Bill Stirling of the Canadian Manufacturers and Exporters touted a study by his organization that said tax cuts were reinvested by businesses into things like training, research and development and even wages. That study also said the corporate tax cuts would create 98,000 jobs.

Differing view

Jim Stanford, also a leading Canadian economist, found something entirely different when he crunched the numbers.  His analysis says the latest round of corporate tax cuts will result in the loss of 46,000 jobs.

“Cutting corporate tax rates bear little relationship to increased staffing levels or a boost in economic activity,” says Stanford.  “Corporate tax cuts have very little positive impact on employment, since there is very little change in investment as a result of them. When governments allocate large sums of revenue to corporate tax cuts, that means the money is not available for other priorities — like extending EI benefits for laid-off workers, investing in infrastructure or supporting public programs through transfer payments (like health care or education),”  he reports. All of those programs, he says, create far more jobs than corporate tax cuts.

In a recent commentary for the Globe and Mail, Armine Yalnizyan, chief economist with the Canadian Centre for Policy Alternatives, eviscerates the arguments of the business lobby with a few facts.

The notion that corporate tax cuts lead to greater business investment is not exactly a slam dunk argument.

In fact despite repeated reductions in the corporate tax rate since the 1980s, the rate of business investment hasn’t changed that much.

Yalnizyan notes that federal corporate tax rates have fallen from 28 per cent in 2000 to 18 per cent in 2010. Yet business investment as a share of GDP was 12.4 per cent in 2000 when the tax cuts started and was the same in 2009 and in 2010.

Keeping the money

Indeed, there is plenty of evidence that corporations are not really investing their tax cuts, but rather hoarding them.

During this recession, Yalnizhan says the business sector has been generating bigger and bigger surpluses.

The accumulated stock of ready cash, she notes, in the non-financial corporate sector, had grown to nearly $500 billion by the end of the third quarter of 2010.

“That’s a lot of money,” says Yalnizyan. “When it finally gets put to work, we are likely to witness a wave of corporate consolidation. But mergers and acquisitions don’t necessarily create jobs in Canada.” Just ask the people of Thompson, Man. or Hamilton, Ont.

In fact, this is the big problem with across-the-board corporate tax cuts. They are indiscriminate, which means multinationals throwing Canadians out of work are also rewarded.

It would make a much better and stronger business case if the Canadian Manufacturers and Exporters argued for public policy that rewarded those businesses that actually created jobs or for direct investment in that sector which has suffered greatly in the past few years.

Yalnizyan’s arguments and analysis were also supported by the chief economist with Statistics Canada.

Phillip Cross bravely told The Canadian Press that corporate tax cuts are such a small factor in how business shapes the Canadian economy that the statistics agency can’t even reliably measure the impact.

“A couple of billion dollars (of savings from tax cuts) is a drop in the bucket of corporate income here,” Cross said in the CP interview. “It’s trivial.”

So, are businesses investing their tax cuts in workplace training? It seems not much of that is happening either.

A study prepared for the Canadian Council on Learning — entitled Employer Investment in Workplace Learning — found that Canada was underperforming in workplace learning when compared to other countries, despite all those billions and billions of dollars in corporate tax cuts since 2000.

Fewer than 30 per cent of adult Canadian workers participate in job-related training and education, compared to 35 per cent in the U.K. and nearly 45 per cent in the U.S. Employer-sponsored training in Canada has been stagnant, according to the report.

So why keep delivering tax cut after tax cut to the corporate sector as if they were an economic panacea?

The answer has little to do with the facts and all to do with the real reason behind these irresponsible tax cuts. Ideology wins again.

Lana Payne is president of the Newfoundland and Labrador Federation of Labour. She can be reached by email at lanapayne@nl.rogers.com.

Her column returns Feb. 26.

Organizations: Harper Conservatives, Canadian Manufacturers, Employer Investment Globe and Mail Canadian Centre Canadian Press Statistics Canada.Phillip Cross Canadian Council on Learning U.S. Employer Newfoundland and Labrador Federation of Labour

Geographic location: Canada, Thompson, U.K.

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Recent comments

  • james
    February 14, 2011 - 13:44

    it was 200 billion taxpayer nuff said

  • james
    February 14, 2011 - 08:09

    jim stanford is paid by the canadian auto workers he is working today because of a goverment bailout

    • Taxpayer
      February 14, 2011 - 12:21

      Yes Jimmie and all the others economists are employed due to bank bailouts. Remember the $75 Billion they got!

  • ed power
    February 13, 2011 - 16:02

    Well said Ms. Payne. If corporate tax cuts were the financial panacea that some make it out to be, the US would be the richest nation on earth. Despite three decades of tax cuts and deregulation, the corporate sector has fled to low tax, low wage, low everything third world countries taking their tax cut windfalls with them. Were it not for thecountries who are financing the US: the Chinese who can't afford to let the US fail, and the Saudis' who are terrifed of losing their military protectors, the US economy would have collapsed already. How does a country that manufactures very little of what consumers want, or need, and that supports itself through creative financial schemes and by selling arms to everyone under the sun keep its head above water? By generating less revenue through corporate tax cuts so that these same corporations can create more jobs in China, while at the same time tripling the amount of money it donates to the Pentagon. Now that is a sure fire road to financial success.