ATAMANENKO: Do corporate tax cuts really create jobs?
By Alex Atamanenko
In 2000, then Liberal Finance Minister Paul Martin cut corporate income tax rates by a quarter, from 28 percent to 21 percent, phased in over five years. The Harper government has continued those cuts from 21 per cent in 2007 to 18 percent today, and is ignoring NDP advice and further reducing corporate taxes 15 percent by 2012.
Those cuts have taken hundreds of billions of dollars out of the revenues that pay for our health care, education, infrastructure and fighting climate change. Rural BC residents can see the deterioration of our schools and health care services, and are wondering…. where are the jobs?
Mr. Harper says that such cuts create jobs through investment and innovation, and make us more competitive in our future economy. But do they really?
In fact, information from Statistics Canada, Finance Canada, leading economists and former Privy Council clerks says that this claim is misleading.
Corporate tax breaks haven’t stimulated innovation. In 2007, Canadian business spending on Research and Development (R&D), about 1 percent of GDP, ranked 14th in the OECD, well below the average of 1.6 percent, and only a third that of Sweden, Finland and Korea.
Corporate tax breaks haven’t increased productivity. Kevin Lynch, former Clerk of the Privy Council and Cabinet Secretary, says that, despite Canadian corporate tax rates well below those of the U.S., “business-sector productivity growth was actually worse in the decade just ended.” Low productivity growth is a sign that business has not invested in new labour-saving technologies or in productivity-enhancing R&D.
Corporate tax breaks haven’t stimulated investment. Despite a 36 percent drop in corporate taxes (both federal and provincial) in the last decade and record profits for much of that time, business spending on machinery and equipment has declined as a share of GDP, and total business investment spending has declined as a percentage of corporate cash flow. (Source: Statistics Canada and Finance Canada)
More competitive? In 1999, the year before Paul Martin’s tax cuts, Canada was fifth in the World Economic Forum’s competitiveness list. Today, we are in ninth place. That’s well behind most Nordic countries that collect as much as 50 percent of their GDP in taxes each year. Clearly, the link between tax cuts and performance is a myth.
Before 2007, Canada’s combined federal/provincial corporate tax rate was already below the combined federal/state rate of the US, and below the rates of all but one other G-7 member, the UK. When the Harper corporate cuts are fully implemented, Canada will have the lowest rate in the G-7 by far: 12 percentage point below the comparable US rate, Canada’s biggest competitor.
This strategy has clearly been driven by conservative ideology and not by the evidence at hand. Corporate profits in Canada are on the rise, while corporate investment, innovation and productivity continue to lag.
It is a myth that corporate tax cuts create jobs in Canada. This policy has lead to reduced support for essential programs, services and infrastructure on which Canadians rely. It has also lead to bigger deficits, higher debt payments and increased taxes for the rest of us.
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