Corporate Income Taxes

[parvus]

The working poor probably aren't paying much in the way of income taxes.

Only up to 70% MTR for a single earner in a family of 4, supposedly in the first tax bracket.

I won't say make the rich pay, but I could say, enable the poor to pay less.

[ghariton]

All very nice, but what are we to make of an election campaign where all parties argue as if there was no shifting of the corporate income tax whatsoever? Isn't that, at best, very misleading? And what are we to make of voters who are judged (correctly in my view) to be hostile to reasoning that approaches this level of complexity?

I'm depressed.

George

[parvus]

You're not the only one! I have probably made a mistake by responding to FaceBook forums on tax fairness. What a blowback! It's pretty scorched earth/take no prisoners territory. So it's not just the politicians peddling economical truths; it's also an electorate, or significant parts of it, saying in effect, it's the other guy's fault, so leave us alone. Sigh.

[ghariton]

From the Economist, in a discussion about the current sovereign debt crisis in Europe:

Some politicians are still pushing daft demands, such as forcing Ireland to raise its corporate tax rate, which would block its best route to growth.

Think that Michael Ignatieff reads the Economist? If not, should someone give him a subscription for Christmas Easter? Or is he economically illiterate, the way Pierre Trudeau was?

Oh dear, oh dear.

George

[NormR]

So let's do a negative income tax.

Yes. Advocated, among many others, by Milton Friedman and Barry Goldwater.

I knew we would convert you some day.

You should have heard the lunch discussion with Norm today, with him taking up the left-wing perspective.

We must help brother parvus to get back to caring about the common person. He has unfortunately been blinded by vile corporatist propaganda. He seems to have been institutionalized, so to speak.

[Bylo Selhi]

Some politicians are still pushing daft demands, such as forcing Ireland to raise its corporate tax rate, which would block its best route to growth.

1. Canada is not the economic basket case that Ireland et al are (in large part thanks to the tough measures FM Martin took 15 years ago.)
2. Canada is not in a "debt crisis" (despite the profligate briberyspending of FM Flaherty.)
3. Ignatieff isn't calling for a rise in corporate income tax rates. He's calling for a freeze on previously-announced cuts. Why? Because we don't need them and because we can't afford them (thanks to 2.)
4. Canada's corporate tax rates are already among the lowest, if not the lowest, in the G-8. We already have a competitive advantage on corporate tax rates.

Other than that, The Economist article makes some valid points. Thankfully they don't apply to Canada (yet.)

[NormR]

2. Canada is not in a "debt crisis"

Problem is, once you're in a debt crisis you're pretty much in the soup already.

Combine the debt of all levels of government + various off balance sheet items + individual debt and I'd say that we haven't left much margin of safety left. A resource bust - they seem to follow booms - would be crippling.

I've actually been a little surprised at how restrained the various minority fed governments have been. The big debt growth seems to have come on the provincial level recently - at least in Ontario.

[ghariton]

1. Canada is not the economic basket case that Ireland et al are (in large part thanks to the tough measures FM Martin took 15 years ago.)

True. But a country doesn't have to be an economic basket case to benefit from much lower corporate income taxes. I listed a few arguments upthread. None of them depend on being an economic basket case.

2. Canada is not in a "debt crisis"

True. But see NormR's comment upthread. Anyway, the real debt crisis is developing at the provincial level -- Ontario and Quebec already have some pretty scary levels. With an aging population and growing health care costs, it's going to get much,. much worse. We need all the productivity-enhancing measures we can get (Canada is a laggard in productivity and this is a serious problem).

3. Ignatieff isn't calling for a rise in corporate income tax rates. He's calling for a freeze on previously-announced cuts....

That's just semantics. The key point for me is that the Conservatives are promising lower tax rates than the Liberals.

...Why? Because we don't need them and because we can't afford them (thanks to 2.)

Yes, we need tax increases (as per the discussion above). But we should get them from those taxes that do the least harm. I think that there is general agreement that consumption taxes such as the HST are top of the list. So let's reverse the HST tax cuts, with minimal damage, instead of of corporate taxes, which are much more damaging.

Another possibility is a meaningful carbon tax. That would raise revenues AND help the environment by cutting down on use of energy, which has significant negative externalities. But I suppose that has become the third rail of politics for both the Liberals and the Conservatives.

4. Canada's corporate tax rates are already among the lowest, if not the lowest, in the G-8. We already have a competitive advantage on corporate tax rates.

Same for Ireland.

Having "competitive" corporate income tax rates is desirable, I suppose, but contrary to what the Conservatives are saying, it's not a very strong reason for cutting corporate tax rates. (Creative transfer pricing usually lets profits pop up in the least taxed jurisdiction anyways.) The strong reason, in my opinion, is that it is a very distorting tax, deters productivity increases, and leads to waste of society's resources.

I should mention that equity considerations are also very important. Often corporate taxes are shifted, and ultimately paid, by the middle class and the disadvantaged (who have little bargaining power when selling their labour).

George

[Bylo Selhi]

True. But a country doesn't have to be an economic basket case to benefit from much lower corporate income taxes. I listed a few arguments upthread. None of them depend on being an economic basket case.

Yabbut we already have the lowest corporate tax rates in the G-8. Could we go lower? Sure. But doing so is not at the same priority as it would be if we were losing corporations due to our higher[est], non-competitive rates.

Anyway, the real debt crisis is developing at the provincial level -- Ontario and Quebec already have some pretty scary levels.

What's that got to do with Ottawa? How is lowering federal corporate taxes going to help the provinces deal with their debts?

That's just semantics. The key point for me is that the Conservatives are promising lower tax rates than the Liberals.

Yes it's semantics, just as is the original claim that Ignatieff wants to raise corporate taxes. Let's both agree to stop hyperbolizing

Yes, we need tax increases (as per the discussion above). But we should get them from those taxes that do the least harm. I think that there is general agreement that consumption taxes such as the HST are top of the list. So let's reverse the HST tax cuts, with minimal damage, instead of of corporate taxes, which are much more damaging.

Agreed. I always argued that the GST cuts were bad policy. In fact just about everyone but Steve and Jimbo agrees. So why did they do it? (That's a rhetorical question.) And why won't they undo it (GST cuts) now that it should be obvious, even to them, that it was bad policy even if it was goodcynical politics.

Another possibility is a meaningful carbon tax. That would raise revenues AND help the environment by cutting down on use of energy, which has significant negative externalities. But I suppose that has become the third rail of politics for both the Liberals and the Conservatives.

Yup. And who do we have to thank for making it that? (Hint: Harper ridicules Dion proposal as 'green shaft')

Often corporate taxes are shifted, and ultimately paid, by the middle class and the disadvantaged (who have little bargaining power when selling their labour).

We've both discussed in the past the benefits of eliminating corporate taxes altogether since ultimately it's consumers who pay them by way of higher prices. My position hasn't changed philosophically but I'm not convinced that now is a good time to cut them further.

[adrian2]

That's just semantics. The key point for me is that the Conservatives are promising lower tax rates than the Liberals.

Yes it's semantics, just as is the original claim that Ignatieff wants to raise corporate taxes. Let's both agree to stop hyperbolizing

Ignatieff wants to raise corporate taxes from the previously approved levels, as per budgets passed into law by the parliament. As a parallel, reneging on a contract to give 3% annual raises for the next 3 years would not be welcomed by any union (oh, we changed our mind and can't afford it any more, tough luck it was in the previous labour agreement).

[ghariton]

]Anyway, the real debt crisis is developing at the provincial level -- Ontario and Quebec already have some pretty scary levels.

What's that got to do with Ottawa? How is lowering federal corporate taxes going to help the provinces deal with their debts?

It's the total government sector debt that matters. The rest is just which pocket the payment comes out of.

George

[big easy]

Ignatieff wants to raise corporate taxes from the previously approved levels, as per budgets passed into law by the parliament. As a parallel, reneging on a contract to give 3% annual raises for the next 3 years would not be welcomed by any union (oh, we changed our mind and can't afford it any more, tough luck it was in the previous labour agreement).

Unlike union contracts, a new budget is passed each year. The tax increases would have to be passed into law by parliament before coming into effect.

More worrisome are the hare-brained schemes he has come up with for the money. Each program probably costs $1.50 for every $1 it delivers (gives back) to taxpayers. Don't we already have tax credits for daycare and education?

[adrian2]

The tax increases would have to be passed into law by parliament before coming into effect.

Correct. As the law stands now, corporate taxes are scheduled to decrease. To change that requires new laws which would raise the taxes from the currently approved rates. Replace corporate taxes with personal income tax brackets indexation and you'll see what I mean. Any future government removing indexation would be raising tax rates.

[parvus]

Via Worthwhile Canadian Initiative:

3. Corporate taxes are already 'competitive'. This is the same thing as saying that Canada is already rich, so why bother trying to increase our incomes? If we can do better, then we should. The efficacy of raising or lowering the CIT depends only marginally on what other countries are doing.

4. Corporate tax cuts are part of a 'race to the bottom'. This point confuses 'low corporate taxes' with 'low overall taxes'. The most successful social democracies have long understood that the recipe that reconciles high economic growth rates with high government spending includes low corporate tax rates.

5. Rescinding the corporate tax cut will help fight the deficit. If it's government revenues we need - and I agree we need them - then the CIT is the worst way to raise them. Even if we set aside the effects on income and wages (and we shouldn't), the effect on the budget balance of a CIT reduction of 1.5 ppt is on the order of $1b-2b - less than one percent of the federal budget, and only a fraction of the structural deficit we have to deal with. The best way to a balanced budget is to rescind instead the cuts to the GST.

[parvus]

Canada is a laggard in productivity and this is a serious problem

Funnily enough, I was walking home from the grocery store yesterday, probably having overspent (mostly on cat food and lack of back for carting home potatoes in bulk), and there was someone staging stuff on the sidewalk, not a yard sale, but a yard giveaway. My hands and shoulders were quite full, so I couldn't lug away the furniture. But since George is such an advocate of the scientificity of microeconomics, I did manage to cart away two economics textbooks. As I browse through one of them, I find this:

"Whereas the growth of labour productivity has been relatively slow in Canada in recent years, real wages per worker have increased faster. In other words, higher wages have not been matched by higher productivity. This widening gap between productivity and wages has not only reduced the international competitiveness of Canadian goods but has also increased inflationary pressures in Canada. This is because the money earned is chasing relatively fewer goods and services. Also, although productivity in Canada is lower than in the U.S., our principal export market, average wages in Canada are higher -- a fact which is gradually making it more and more difficult for Canadian manufacturers and other producers to compete in the U.S. market and elsewhere. Only if the exchange rate for the Canadian dollar sinks even further can Canadian export prices remain competitive..."

Guess what year/half-decade that was written. (Hint, the book throughout refers to GNP.)

[ghariton]

Guess what year/half-decade that was written. (Hint, the book throughout refers to GNP.)

Concern with Canadian productivity has been around for a long, long time. But from your hint, I would guess the passage is from the late 1970s.

I note that productivity is not even mentioned in the present campaign. Sigh.

George

[big easy]

Guess what year/half-decade that was written. (Hint, the book throughout refers to GNP.)

Concern with Canadian productivity has been around for a long, long time. But from your hint, I would guess the passage is from the late 1970s.

I note that productivity is not even mentioned in the present campaign. Sigh.

George

Someone once said "An election campaign is no time to discuss policy". The public does not want to hear about the necessity of taxation (they would rather pay no tax) and they like being bribed with their own money (for example, the child fitness credit).

That leaves politicians to get elected by whatever means necessary and then do the right thing once in power (hopefully they have competent ministers). Doing the right thing is very subjective however. So if one wants to vote on the basis of "policy" they will have to read between the lines and try and figure out what each party is likely to do once in power.

Interestingly, political persuasion seems to have little correlation with fiscal prudence. Republicans don't spend but they rack up huge deficits through tax cuts. It was the liberals (with the help of the Conservative's GST) that tamed the deficit here in Canada and it was the Conservatives that blew it up again and don't seemed too concerned about reducing it going forward.

IMHO:
The Conservatives seem more interested in social conservatism (gun registry, gay marriage, war on crime) and shifting taxes away from business (HST and now corporate tax cuts).

The Liberals are still lost in the desert, looking to buy votes and void of original ideas.

The NDP - whatever.

[Rysto]

It was the liberals (with the help of the Conservative's GST) that tamed the deficit here in Canada

The GST was not a source of additional tax revenue for the federal government. It was a revenue-neutral replacement for an older tax on goods manufactured in Canada.

[AltaRed]

The GST was not a source of additional tax revenue for the federal government. It was a revenue-neutral replacement for an older tax on goods manufactured in Canada.

People keep forgetting that and most consumers probably don't believe it.

[ghariton]

It was the liberals (with the help of the Conservative's GST) that tamed the deficit here in Canada

The GST was not a source of additional tax revenue for the federal government. It was a revenue-neutral replacement for an older tax on goods manufactured in Canada.

Indirectly the GST was a source of additional tax revenues. While it was designed to be revenue-neutral when implemented, it had the effect of making industry more productive and grow faster. Thus, their revenues grew more quickly than otherwise, and so did taxes on those revenues. (Also more taxes from the additional wages paid and the additional dividends received.) Win-win-win, as they say.

As AltaRed suggests, the average Canadian would not understand this even if it were explained slowly and painstakingly to him or her, never mind believing it.

Therefore, I suppose, the lack of meaningful debates in the present electoral campaign.

George

[parvus]

Guess what year/half-decade that was written. (Hint, the book throughout refers to GNP.)

Concern with Canadian productivity has been around for a long, long time. But from your hint, I would guess the passage is from the late 1970s.

First edition, 1978; second edition, 1984; revised printing (with charts and cartoons) 1987. How's that for productivity?

[parvus]

The GST was not a source of additional tax revenue for the federal government. It was a revenue-neutral replacement for an older tax on goods manufactured in Canada.

People keep forgetting that and most consumers probably don't believe it.

Especially in BC.

[kcowan]

The GST was not a source of additional tax revenue for the federal government. It was a revenue-neutral replacement for an older tax on goods manufactured in Canada.

People keep forgetting that and most consumers probably don't believe it.

Especially in BC.

In BC, they ignore the basis for the HST and blame the whole tax rather than the incremental tax. OTOH they seem to have accepted the carbon tax.

[big easy]

The GST was not a source of additional tax revenue for the federal government. It was a revenue-neutral replacement for an older tax on goods manufactured in Canada.

People keep forgetting that and most consumers probably don't believe it.

Especially in BC.

From here:

http://taxpayer.com/british-columbia/revenue-neutral-just-gst

"Canadians have been visited by the specter of a revenue-neutral tax before - it was called the GST. Just how neutral was the GST Although when introduced, net revenue from the GST was about the same as the tax it replaced, it quickly accelerated and is credited by Brian Mulroney himself as instrumental in slaying the deficit dragon and raising billions for Ottawa."

[AltaRed]

Although when introduced, net revenue from the GST was about the same as the tax it replaced, it quickly accelerated

As it should as the value of consumption increases (as the biggest component of GDP). This will eventually come in the USA as well. They have no hope of getting themselves out of their mess if the Republicans keep cutting taxes on the wealthy.