Wednesday, April 25, 2018

It's Time To Ask The Right Questions

The old myth that tax cuts, especially of the corporate kind, create jobs, continues to be circulated. Indeed, here in Ontario, PC leader Doug Ford is promising to reduce the corporate rate from the already historically-low 11.5% to 10.5% "to bring jobs back to Ontario."

In Australia The Canberra Times' Ben Oquist says it is time to reframe the tax discussion by posing a series of questions aimed at showing the destructive nature of such cutting:
Every proponent and lobbyist for the policy should be asked what social program or infrastructure project should be cut, or what other tax should go up to pay for boosting post-tax profits of large business. Indeed Treasury’s own modelling - often cited to support the tax cut legislation - assumes that either personal income taxes will increase or government services will be cut.

We hear almost exclusively from the "winners" of a company tax cut. But the public cannot be expected to make an informed choice as to whether this is the best way to create ‘jobs and growth’ if we do not know, specifically, where the off-setting cuts will be made. Will it be billions less for schools, or hospitals? Or will it be the infrastructure spend for our fast growing population that misses out?
Only the untutored mind will accept Doug Ford's bromide of tax cuts with no pain:
... while Ford likes the tax cuts, he doesn’t like the carbon tax (or any other tax), leaving a $10-billion hole in his budget.

Not to worry, says the self-proclaimed stopper of gravy trains. Ford insists the better part of the shortfall – about $6 billion – could be covered through the elimination of so-called inefficiencies.
In Australia, by contrast, some of the corporate sector is beginning to understand the folly of such short-sighted tax measures:
This week a survey of Australian company directors found that infrastructure spending, not tax cuts, should be the priority in this year’s federal budget.

Many company directors also know that ultimately business can only flourish if a decent society is maintained and that this requires a strong role for government providing quality services, training, education and modern infrastructure. This of course requires a strong revenue and taxation base to fund it.
Why don't corporate tax cuts work in creating jobs, jobs, jobs?
History shows that corporate tax cuts are largely spent on stock buybacks, increased dividendsand acquisitions, all of which only helps to benefit wealthier shareholders – not workers or the community.
That has been the Australian experience, and the same reality is unfolding in Trump's America:
Figures already released following Trump’s tax cut show that investment is down but there has been a frenzy of share buybacks, increased dividends combined with mergers and acquisitions that increase CEO power and drive inequality even higher.
For more discussion of the above, check out this New York Times article, which observes that
American companies have announced more than $178 billion in planned buybacks — the largest amount unveiled in a single quarter, according to Birinyi Associates, a market research firm.
Informed and serious discussion of taxation is hard to come by these days. Instead, shrill pronouncements from demagogues predicting financial Armageddon if fair taxation is imposed hold sway.

Clearly, it is time for all of us to put on our thinking caps, pierce through the hysterical proclamations and begin behaving like adults, not children who favour sweet lies over bitter truths.


  1. It's a lie -- and an old one at that, Lorne. Yet the truth has a hard time seeping in.

    1. Too many people won't let the truth set them free, Owen.

  2. US corporations planned, well in advance of the Republican tax cuts, how they would spend their windfall. It didn't go into new economic ventures. It didn't go into jobs. It went into shareholder dividends, share buy backs and executive bonuses. And then the culprits who had enabled this national larceny announced they were leaving politics.

    1. The same story repeats itself ad infinitum, Mound, yet a credulous public rarely questions the utility of such cuts.