Insults, snake oil and the Tories' corporate tax cuts

'The truth is that businesses aren’t required to use their tax cuts for job creation and they haven’t done so in the past.'

By Larry Brown
National Secretary-Treasurer
National Union of Public and General Employees (NUPGE)

Ottawa (26 Jan. 2011) - The Harper Conservatives say they are intent on reducing the deficit at any cost. At the same time they are slashing corporate taxes by another $6 billion dollars per year – on top of all the previous corporate tax cuts. 

This is too much. We are already collecting $16.5 billion less every year from profitable corporations because they have already benefitted from years of  lavish tax cuts. We wouldn’t have a federal deficit now if it weren’t for all the previous tax cuts to the wealthy and profitable corporations.

The blinding ineptitude of the move to cut corporate taxes yet again, while claiming to fight the deficit, is so obvious that even the Liberal party, no stranger to tax cuts, is speaking out against the Conservative plan.

Federal Finance Minister Flaherty has responded to the Liberals by calling their position “dumb”. Resorting to school yard insults – now that's a sure sign of a weak argument!

In truth, corporate tax cuts force Canadians to subsidize exorbitant CEO salaries.

The sad fact is, through corporate tax cuts, we are all required to help pay the absurd amounts that CEOs collect in compensation.

Because companies no longer contribute their fair tax share, they have money to burn and some of this excess goes directly to higher CEO and executive salaries, in multi-million dollar CEO pensions and in the billions of dollars in bonuses ladled out to the executive ranks.

While we must still pay our taxes we are getting get less and less for our tax dollars – fewer public services, attacks on the wages and jobs of public sector workers, and the slashing of public spending in the name of deficit fighting.

Yet federal deficits remain. Although we’re paying our fair share, profitable companies are not and the corporate gravy train continues as executive pay and bonuses continue to inflate.

To mask this bitter truth, the finance minister and his allies have begun a disinformation campaign based on the premise that less is more, that tax cuts are always good and that anything good for business is by definition good for the rest of us - so we should all just shut up about tax fairness. Mr. Flaherty doesn't put it quite that bluntly but that's exactly what he means.

How could one possibly justify a huge tax cut when we’re in a deficit? The only way is by misrepresenting the facts. Let’s have a look at Mr. Flaherty's Conservative arguments.

(1) Corporate tax cuts automatically create jobs. Not true.

The Canadian Manufacturers and Exporters (CME) claims that nearly every single dollar in the tax cuts will be used by businesses to hire workers and invest. Therefore we will have 98,800 new jobs! This would be good news, if only it were true. It is not.

The truth is businesses aren’t required to use their tax cuts for job creation and they haven’t done so in the past. The evidence is clear that tax cuts have not led to higher employment or new investment.

Even the Canadian Manufacturers Association (CMA) admits “Canadian businesses have invested a declining share of after-tax cash flow in both new facilities and in machinery and equipment over the past 30 years.” After-tax profits have grown while investments have declined while governments have been cutting corporate taxes continuously – with results the exact opposite of what they have been claiming.

The truth is that in the face of years of corporate tax cuts, Canada has lost more than 350,000 good paying manufacturing and processing jobs, even before the most recent Great Recession.

Corporate tax cuts are well known to be the least efficient way to increase employment. Even the federal government knows this.

In its 2010 budget, the government calculated how much “bang for the buck” it would get from different expenditures aimed at creating jobs. Their own numbers show that every dollar in corporate income tax cuts boosts the economy by a mere 30 cents.

However, every dollar spent on “other spending measures” (like public services) boosts the economy by $1.40. In other words, the best investment for Canada in terms of job creation is investing in public services. Even personal income tax cuts are better at stimulating the economy - by the government’s own figures.

So even if it were true that corporate tax cuts would perhaps create some jobs, nearly five times more jobs would be created by investing the same amount of money in public spending.
 
(2) Lower corporate taxes are necessary to attract investment. Not true.

Again, even the CME admits that “over the past decade, reductions in Canada’s effective and average combined statutory corporate tax rates have had little observable impact on net flows of foreign direct investment into the country.”

Translated to English, this means corporate tax cuts haven’t attracted investment even though Canada now has one of the lowest corporate tax rates in the Organization for Economic Cooperation and Development (OECD). Our corporate tax rate is way lower than the U.S., the U.K. or other major trading partners.

On the other hand, an historical review in the U.S. shows that their economic growth and business investment has been highest when taxes have been higher, and on three different occasions large tax cuts were followed by an economic bubble and then a serious crash.

(3) Corporate tax cuts mean higher corporate tax payments. Absurd.

The silliest argument by Mr. Flaherty and friends is that corporate tax cuts create so much economic growth that they actually result in more corporate taxes being paid at the end of the day. Less is more, down is up and truth is expendable.

The CMA report calling for lower corporate taxes is more honest than Mr. Flaherty. The association acknowledges that, as a result of corporate tax cuts from 2000 to 2010, Ottawa now collects $16.5 billion less a year from corporate income tax revenue. Less is not more, even in Mr. Flaherty’s Ottawa.

Of course, the Conservatives know better. They know their new claim that tax cuts equal more revenue is bogus. When the Harper government introduced the second last round of cuts, it bragged that by 2012 the government’s continual corporate tax cuts would result in a multi-billion-dollar yearly reduction in corporate tax payments. It’s just that the truth is now inconvenient, so it is no longer an option for them.

A challenge

The Harper government wants to give away billions of dollars a year on new tax cuts for profitable companies on the premise that this will create jobs and stimulate the economy. They are going to give away this money, through tax cuts, without any promise or guarantee that this tax cut will have any positive impact on anything other than CEOs' pay.

There is really no good argument for corporate tax cuts when the government claims to be fighting the deficit. But if these tax cuts are supposed to be so good for us, why doesn’t the government have the courage of its convictions?

How many people would pay good money for a car not yet been made without a contractual guarantee that the car would eventually be delivered? If the car doesn’t show up, the contract is breached and the buyer gets a refund.

Why wouldn’t we - at the very least - subject this huge investment of public money (in the form of tax cuts) to the same standard?

Demand proof

The government should at least require proof that companies are actually spending public money to create jobs before they get their tax cuts. Instead of saying, “Here’s several billion dollars, we hope you spend it wisely,” the government should say “If you create jobs with your profitable company, we’ll give you a break on taxes, but if you just spend your money on executive pay and bonuses, no way will we use public money to pay for that.”

If Ottawa would introduce a test requiring real investment and job creation before corporate tax cuts take effect, the government would save a bundle for use in public services that will actually benefit the people of Canada and not simply line the pockets of the corporate aristocracy.

But I suppose Mr. Flaherty will just label this a dumb idea.

NUPGE

The National Union of Public and General Employees (NUPGE) is one of Canada's largest labour organizations with over 340,000 members. Our mission is to improve the lives of working families and to build a stronger Canada by ensuring our common wealth is used for the common good. NUPGE