Corporate Tax Cuts and the Facts

tax cuts and job creation

As the American political landscape continues to show no signs of stopping its descent into what can only be described as an increasingly reactionary and carnivalesque sideshow, one begins to wonder if the more measured and sober voices in Washington have finally decided to call it a day. Even on our own side of the border the divisions continue to grow deeper and more virulent with almost no position free from partisan embelishment. However, to those who would suggest that the truth always lies somewhere in the middle and that there is no black and white but rather only differing shades of grey, I will only respond that such a position seems to carry with it the same sort of non-thinking that characterizes the very worst of fundamentalists.

What such thinking does is instead of shining a much needed harsh and critical light on what should, from the outset, be some very questionable ideas, it instead accommodate them and allows untruth and perhaps more dangerously half truth to become common fact. Chief among these as of late has been the position that corporate tax cuts are somehow tied to job creation, and that to demand that the already over-taxed of admission is the equivalent of handing out the pink slips yourself. This myth, often taking the form of a rather nasty threat is not only provably ahistorical, but dangerous.

Ost corporations in the United States, nearly all of them paid more in foreign taxese paying thirteen billion dollars in taxes paid only two hundred million of it in the United States. The list doesn’t stop there however. Exxon, Wal-Mart and numerous other corporations with profits in the tens of billions of dollars paid their taxes at a much lower rate, or in some cases not at all.

The argument for lowering the corporate tax rate grows weaker still when you remember that many of these corporations have made record profits in the last year, even as unemployment continues to rise. In the first quarter of 2011 the profits of the American International Group (AIG) and several other beneficiaries of government bailouts reported rising profits. Likewise, Wal-mart reported a profit increase of 5.7%. It appears that it couldn’t be a better time for some of America’s largest and most prosperous corporations. On our side of the border recent studies have shown that Canadian corporations over the last decade have increased their profits by fifty percent, while paying close to twenty percent less in taxes. So where are all the jobs?

The truth is, that despite what conservatives on both sides of the border would tell you, there is no historical correlation between lower corporate taxes and job creation. In fact, historically, American employment growth was at its highest when the corporate tax rate was between a whopping 69-80% (more than double the current rate). It was at its second highest when corporate taxes were at 39.8 percent, nearly five percent more than they are currently. This is not to suggest that there is any correlation between higher corporate taxes and job creation, but rather that for much of the history of the United States taxation has been at best a non-factor when it comes to job creation. In fact, cutting corporate taxes is statistically the least effective means of job creation, with income supports for the unemployed proving to be nearly seven times as effective. There is zero evidence in support of corporate tax cuts, and yet it remains a major talking point for many conservative arm chair economists.

What has been demonstrated quite clearly is that corporations will continue pocketing the extra cash afforded to them by lower tax rates, and if it does come time for them to hire it will more likely than not be over seas. Of course the conservative response to this is that over seas corporations don’t face the same tax burden they do here. However, even if we ignore the fact that this “tax burden” is all but non-existent and that a great deal of most corporations’ taxes are in fact paid overseas, the data is still largely at odds with this hypothesis. Take for instance the Republic of Ireland, which boasts the third lowest corporate tax rate in the EU, while maintaining the sixth highest unemployment rate.

This is because corporations don’t go overseas for taxation, they go overseas because they don’t have to worry about    pesky little things like benefits, minimum wage and workers’ rights. It’s for this reason that if it comes down to a Canadian factory versus a Mexican factory, the Mexican factory will win nine times out of ten. These corporations aren’t in business to be nice, they’re in business to make money; so long as shipping labour over seas will offer more money for the bottom line, you would have to be out of your mind to think that they’ll keep any more business than they have to on our side of the Atlantic. These aren’t charities, and no ones going to be getting a job out of the goodness of their heart whether it’s a recession or not. It is in the best interest of business to minimize unnecessary expenditures wherever possible, especially when it comes to “human resources.” The evidence is already out there, lower corporate taxes lead only to higher profits, not more employment. Simply (perhaps even crudely) put, they just don’t care. It’s more money for them, and they’re not hiring anyone they don’t have to.

The case against corporate tax cuts grows stronger still when you consider that tax cuts are by definition a decrease in federal revenue. It’s money that can, and in my opinion should, remain in federal coffers or be allocated to more effective and proven methods of job creation. As has been demonstrated, there is no guarantee that money spent on corporate tax cuts will go to employment or innovation; in fact, the available evidence seems to provide a fairly compelling argument that it doesn’t. In this way corporate tax cuts don’t only not create jobs, they kill them by taking federal funds from more proven methods of job creation. EI benefits, support for public programs and investment in infrastructure are already established methods of job creation, and as such, diverging funds from these programs in favor of unproven and ineffective measures such as corporate tax cuts is an expression of nothing short of a dangerous ignorance of economic trends.

To make the argument against corporate tax cuts is often to incur labels of being anti-business or fiscally irresponsible by those who continue to hold tight to this tired and ahistorical myth. It is an argument that in the mouth of many a corporate owned politician takes on the form of a rather nasty threat. Cut our taxes or we will fire people. It’s precisely the sort of ugly hostage taking which has characterized much of the recent rhetoric of the right. What we need to do as Canadians is to stay informed of the facts, not the talking points so we can call this sort of bullying and thuggishness for what it is. Multi-billion dollar corporations have placed a gun to the head of Canadians (and Americans) and are demanding that we continue to sacrifice our social services, and continue to foot the bill for corporate tax cuts even as executives make bonuses in the tens of millions of dollars. Tax cuts, like every other expenditure, don’t pay for themselves and if it isn’t corporations that are paying them you’d better believe it’s you.

The solution to employment and corporate growth lies in increased public consumption. It was and has been increased public wealth that has marked the end of past recessions, and this can only be accomplished by tax cuts to the middle class. Increased consumption is what spurs business, and this can be done only once money is placed in the hands of Canadian families where it belongs. What I would propose as a solution is a closing of tax loopholes for all large corporations, as well as a five percent tax increase which would still keep it well below that of our southern neighbors. With one of the very lowest corporate taxes in the G8 it is quite difficult for anyone to make any serious case that Canadian corporations are somehow overtaxed. What  we can then do is pass the money along in the form of a tax cut to working Canadian families who will then have more money to put back into the economy. If corporations want their tax cuts they can have them in the form of a tax credit tied directly to the jobs they create, this way the real job creators will be rewarded for what they do, not what they might do in potentia.

It is necessary that we put our money towards methods that have proven to be effective, more money in the pockets of investors will provoke more spending by consumers and it is that which will get us out of this recession, not concessions to corporate hostage taking. Canadian families are the ones who invest in our economy, and an increase public wealth  should close recessionary gaps create  a healthier, more vibrant economy with production to match. With increased production at every level should cause a natural supply shift, and with the right incentives the real job producers will prove themselves. It’s basic  economics, business has and will always be spurred by a public with increased wealth. If we are to rise out of this recession, it will be in the same way we always have, from the ground up. Middle class Canadians are, and always have been the real investors and it is by enriching these real investors that our nation will prosper, not by increasing corporate bottom lines. A boost to Canadian families is a boost to all of us. Hopefully at the next election more Canadians will realize this, then we can leave this ugly, groundless myth in fiction where it belongs.

3 comments

  • This is a very compelling piece of writing. I would only note that it may be worth it to invest a little more time into providing the sources for these statistics (though I don’t doubt them, I do like to check these things out for myself… it’s just a matter of transparency), and also to have someone edit the grammar, because it takes away from the impact of the argument when someone writes “its” (as in possessive) instead of “it’s” (as a contraction). I understand this is a “bloggish” style article, but at the same time I, if in your shoes, would take every advantage I possibly could to make sure my claims are credible and professional.

    Overall, however, I do agree with the argument and wish that I were able to succinctly explain this mess as clearly as you. Bravo, Benjamine.

  • erle,

    Thank you for the comment, I appreciate it!

    I’ll compile a list of the sources I used in writing this piece as soon as possible, as for its/it’s…it has probably been the bane of my existence and I honestly thought I got them all this time, I’ll go over the article one last time to fix the ones I missed.

    Thanks again!

    Ben

  • Changes have been made for the one its/it’s that was there, sources to come once I get back from traveling.

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