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Shock and Awful - The Truth Behind the CIT cuts

April 20, 2011

3-minute read

Cutting corporate income taxes doesn't create jobs.  They may raise wages, but probably not for you and me. And they mean Canadian taxpayers are paying more….to help the Americans pay down their debt   Here's how I know these things to be true: Yesterday SUN TV rolled out its first full day of programming. The prime 8 p.m. slot features radio shock jock Charles Adler, and his show kicked off with the issue that has defined much of the election campaign thus far - corporate income tax cuts. I was invited to weigh in on the topic, along with economist Stephen Gordon and Robert Dutton, CEO of RONA. The whole thing was designed to get guests to deliver the clip “corporate tax cuts, good!” (insert caveman grunt), or sound like a fool for saying they’re not. More jobs! More investment! What’s not to love? Stephen Gordon, the first guest, went wildly off message (or at least the message they were expecting) with his opening statement, saying the policy of corporate income tax cuts is “not really designed to generate employment”. He went on to say it “increases investment, increases productivity and increases wages…. It’s supposed to be set up to increase capacity, productivity. It changes the type of jobs you have; but it wouldn’t change the actual number of jobs.” Those statements come around the 7 minute mark of this link They didn’t post my interview with Adler, or the following one with Mr. Dutton, which was in shockingly poor taste, actually more like propaganda - though Dutton handled it with exceptional grace. The segment just got more gonzo as it went on. I had to turn off the crazy when they got to the healthcare segment. Yesterday, also, the Globe and Mail featured an article exploring why CIT cuts may not create jobs and an on-line discussion on the topic with Mike Moffatt and yours truly. We both had Economy Lab posts. Here’s the link to Mike’s, and the link to mine. During the on-line discussion Mike also emphasized that the primary effect of the policy is on wages, not jobs. Recall that the CIT cut is being sold as a job creating measure. The reason is clear: as far as the electorate is concerned, that’s their only virtue. When you get the main proponents for the measure saying they primarily affect wages, not jobs, everyone should do a double take. It makes sense - the theory says corporations don’t pay taxes, they shift the costs in the form of higher prices, lower wages and sometimes lower dividends to shareholders. Cutting corporate taxes should, theoretically, mean lower prices, higher wages or increased dividends. I’ve argued elsewhere why the chances are slim that the benefits would flow to workers or consumers, given the bargaining power of corporations these days. So when the theory says wages will go up, watch out. Because the wage improvements on the menu are not likely to be for the majority of workers, in the economy or even in the firm that does the investing. They are likely to go the CEO and other top managers. That’s the lesson of the decade prior to the global economic crisis - the richest 1% took one third of the income gains from economic growth in that time. They took 8% in the 1960s, a comparable period of sustained and robust growth. They’ll take it in wages, they’ll take it in dividends. But they’ll take it. Today Munir Sheikh — the Chief Statistician who was forced out of Statistics Canada by the Harper Government for refusing to lie to the Canadian public — uses his considerable political capital to clarify how a further reduction in our corporate income tax levels would simply send more money to the U.S. Treasury. I mentioned this in my interview with Charles Adler last night. He framed the CIT cuts as “common sense”, that even the Liberals cut them when they were sensible, and marshalled a clip of John Manley to make the point. I noted that the CIT cuts were introduced by the Liberals when the public treasury was in surplus, not deficit. I noted that today we are standing in a $40 billion deficit hole, and that we will have to borrow the money to offer this windfall to big corporations (whether they invest or not, whether they create jobs or not), a direct cost to the Canadian taxpayer who gets little or no benefit out of the deal. I noted that, because of the degree of foreign ownership here, the “common sense” being promoted essentially asks Canadians to pay more to help pay down deficits elsewhere. So CIT cuts don’t create jobs. They may raise wages, but probably not for you and me. And we’ll be paying more to help the Americans pay down their debt. What’s not to love?

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