Five questions for promoters of corporate tax cuts
TheStar.com – opinion/editorialopinion
Published On Thu Feb 03 2011. By Carol Goar, Editorial Board
Every year since 2000, with one brief interruption, corporations in Canada have received a generous tax cut.
When times were good and everyone was getting tax cuts, Canadians accepted — or didn’t notice — that Ottawa was giving up billions of dollars of revenue.
But times are no longer good. Ottawa is now running a $45 billion deficit. And Canadians haven’t had an income-tax cut since in four years (although there has been a GST reduction).
When the recession hit, Finance Minister Jim Flaherty suspended all tax relief — with one exception. He kept cutting corporate taxes. Canadians raised their eyebrows, but said little.
Since 2009, two more cuts have taken place. Last year, the corporate rate fell to 18 per cent. On Jan. 1 of this year, it was lowered to 16.5 per cent.
Enough is enough, say the opposition parties. The latest cut was imprudent and unnecessary.
The government insists it was essential to keep Canadian firms competitive and spur job creation.
Both sides are buttressed by a phalanx of economists and lobbyists.
On the right, Perrin Beatty, president of the Canadian Chamber of Commerce, warns that failing to proceed with this year’s corporate tax cut “would be like giving the economy a blind side hit.” Jack Mintz of the University of Calgary says Canada will be left behind by other countries with more aggressive tax-cutting regimes if it stops cutting the corporate rate. Finn Poschmann of the C.D. Howe Institute warns investors would get a “pretty negative shock” if Ottawa changed course.
On the left, Jim Stanford of the Canadian Auto Workers argues that cutting corporate taxes would actually destroy jobs. Businesses would hoard — not hire — he says, leaving less money in the federal treasury for jobless benefits, retraining and infrastructure. Erin Weir of the United Steelworkers adds that corporate tax cuts are irrelevant to American investors because they have to pay their own country’s 35 per cent rate on any profits they repatriate.
Most Canadians don’t have the training to evaluate these opinions or cut through the partisan rhetoric. Nor do they have the power to stop this test of wills from escalating into a budgetary crisis, which could trigger a spring election.
But they do have the ability to ask pointed — and pertinent — questions:
• What evidence does the government have that reducing corporate taxes stimulates job creation? Surely, after a decade of cuts, it can offer Canadians more than empty truisms.
• How does Flaherty know corporations will use their tax cuts to hire workers rather than invest in labour-saving equipment, give their executives big bonuses, increase their shareholders’ dividends, facilitate mergers and acquisitions or simply sock the money away?
• Why, if the finance minister is so eager to encourage hiring, did he jack up employment insurance premiums on Jan. 1? Nothing kills jobs faster than a payroll tax increase.
• What proof can he provide that corporate tax cuts make Canadian companies more competitive? They could well have the opposite effect. Instead of hustling for business, investing in research, or capitalizing on Canadian innovations, firms can sit back and wait for the next instalment of tax relief to undercut their international rivals.
• Why is it good economic policy to shift an ever-growing portion of the tax burden from businesses (many of which are highly profitable) to individuals (many of whom are struggling to get back on their feet after the recession)?
For most citizens, corporate tax cuts are not a top-of-the mind issue.
But as a litmus test of their government’s values, its candour and its willingness to balance the needs of all Canadians, they work remarkably well.
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