Support Layton on corporate tax cut reversal

September 30, 2008

If there is one issue that separates the NDP from all the other parties - and really separates them - it is the issue of corporate tax cuts.   We must defend the NDP and Layton on his move to roll back the $50 billion in corporate tax cuts being implemented over 5 years by Harper/Flaherty.  Future governments will be totally paralyzed by lack of revenue because of these cuts - and all bets are thus off for any new social programs, foreign aid or infrastructure.

The NDP is getting hammered on this - for example by Terry Milewski of the CBC who interviewed two right wing economists to blast the NDP in his “reality check” of the NDP’s policy.

Write letters to the editor lauding/defending the NDP’s position.

FRAMING: There are two elements to framing this critical issue. First, we must point out that these cuts are nothing more than giveaways -  cutting corporate income tax has had almost no impact on investment because other factors are much more important in determining investment. Second, these incredibly large cuts will, by 2012, reduce government revenue by billions every year ($15 billion a year by 2012) just when Canada is facing what will likely be a global recession and the need for public spending stimulus.

Here are some facts and argument you can use in your letters...

* Flaherty’s five year corporate tax cuts will reduce federal government by 6% and $15 billion a year once fully implemented, going from 22.12% in 2007 to 15% in 2012 - making Canada one of the three lowest corporate tax jurisdictions in the developed world and the lowest in the G7. See: http://tinyurl.com/yqavlg

* The role of corporate tax cuts in spurring investment has always been exaggerated by business public relations efforts. Surveys of actual CEOs have shown that the income tax rate usually plays a minor role in investment decisions – often placing as low as seventh in importance as a factor in investment decisions. The more important factors include the cost of borrowing, availability of trained workers, energy costs, the reliability of transportation infrastructure, access to markets, and land costs – not to mention demand for what is being produced. The issue of income tax is only important if you actually make an income.

* tax cuts don’t make us more competitive according to the World Economic Forum (amongst free market advocates, the most credible source of such information) . In 1999, the year before Paul Martin introduced his huge $100 billion tax cuts, Canada was 5th in the WEF competitiveness sweepstakes. After nine years of tax cuts we are in 16th place. Who beats us? Amongst others, the Nordic countries, which collect half their GDP in taxes each year. Nine of the 15 countries ahead of us have higher corporate taxes.  See: http://tinyurl.com/jz73w

* The main beneficiaries of the across the board cuts are oil companies, banks and insurance companies. The struggling manufacturing sector (with its decreasing profits) will get very little benefit in terms of retained earnings for new investment.  See: http://tinyurl.com/4epepn

*According to CAW economist Jim Stanford, since 2000: “ the tax savings for corporations were 10 times as large [as personal cuts]. Their effective tax rate fell by 10 points, worth more than $18-billion in 2007 alone. That represents almost 40 per cent of all the tax cuts implemented since 2000.”  See: http://tinyurl.com/54hk9z

* Canadian corporations for the past five years have been making record profits but investing very little in new production. Allowing them to keep more of those profits won’t increase investment - it just means governments will have less to spend. During the 8 year period of major corporate tax cuts (from 28% in 1999 to 19% today) investment has remained flat.

* These cuts were made on the assumption of continued economic growth - but that is clearly not going to happen. With the economic catastrophe unfolding in the US and globally, the Canadian government must have the economic tools to deal with the coming recession - if not depression.  The most effective way to counter the effects of a recession is government spending - rebuilding physical infrastructure, hospitals, schools; hiring teachers and nurses; providing green grants to make homes more energy efficient, expanding mass transit - all these things pump money directly into the economy - into individuals pockets and into Canadian companies. 

* With both the Liberal and Conservative governments gutting federal revenues (Paul Martin cut $100 billion in 2000, Flaherty $60 billion last fall - including personal cuts) the federal government will have no room for any economic stimulus.

* Who benefits from government spending if not corporations? Every company in Canada benefits from educations spending, Medicare, infrastructure like roads and bridges, ports, airports, and transfer payments to individuals who spend buying their products and services. Why should corporations get a free ride/not pay for the things they get from government?

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