Tuesday, February 08, 2011

Waiting On The Trickle Down

A decent read today takes issue with all sides on the corporate tax debate. The Liberals simply disingenuous, the Conservative exaggerating, the entire issue "laughable".

I'm no economist, but it's also true that many economists deal in theoretical arguments, that don't necessarily translate to the real world. For example, if you looked at the predictions made in 2000, when the federal government began cutting corporate taxes, you will see many of the "claims" don't hold water. Business investment hasn't increased as was first argued, in fact it has remained stubbornly flat, rather than re-invest, wealthy corporations have HOARDED, providing no measurable benefit to anyone, other than themselves apparently. Did you know that Canadian corporations now sit on more cash than at any time in our history, inflation included? As well, the job claims simply haven't panned out. Google "bank job cuts" and you will see the BIGGEST corporate tax payers have been slashing jobs like mad since 2000, despite record profits.

Here is the perfect example, one that certain people scoff at (article included) as a misread of how it all works- the CEO of the Royal Bank made 11 million last year, up from 10.4 million. According to the experts, I make an error by noting this obscene salary, bonuses, stock options, plus god knows what other goodies(wonder what his dental plan is, kids get glasses?). I saw bull, because we are dealing with a FINITE amount of capital here, so if we're paying the top echelon more, it is coming out of somewhere, this money isn't separate, it is part of the equation. This particular CEO is not unique, his 5.8% RAISE, during a year when the economy was shaky is obscene and no amount of trickle down arguments will undo the blue sky as it presents itself.

Here's another number which is fascinating, the gap between rich and poor is growing, by any measure you choose. A bit of an odd development, considering all these tax cuts are supposed to re-distribute wealth, lower cost to consumers, etc. In the real world, what we see is the top wage earners making a killing, while SIMULTANEOUSLY trimming cost elsewhere. We have a serious problem, that free market types merely ignore, GREED is rampant and corporate tax cuts only reinforce this dynamic.

The argument that consumers benefit also seems a weak proposition. Are you telling me that if Suncor doesn't get a break, gas will go up? We live in a international climate- as proponents argue- which also means that prices, particularly COMMODITY prices core to the Canadian example, aren't set here, our little regime has no bearing on world supply and demand.

I supported corporate tax cuts years ago because every measure showed Canada wasn't competitive, multi-nationals didn't find us attractive, other jurisdictions were stealing manufacturing jobs. However, those same statistics used in 2000 now show a very competitive climate, thank you very much, so there is little fear mongering required on the economic front. Maybe some provincial rates are still to high(not the debate here), but last time I checked combining the total does a disservice to the FEDERAL reality.

We have the HST, we have all these incentives for business, all these ways they can ALREADY manipulate taxes and credits to maintain profitability. We have jurisdictions everywhere, provincial, municipal, offering corporations "deals" to set up shop. In other words, I see nothing but effort everywhere to make thing competitive, to make things attractive, to basically move the burden from the corporations to the consumer. Enough is enough.

The largest amount of corporate taxes are collected from Canadian banks. Proponents don't like to talk about this fact, because the bank reality is so obnoxious, their support brings a red blush. However, this is a fact, this is your quintessential example of the corporate tax cut legacy. Where are the jobs? What does the profit graph look like? How does that co-orelate to salaries, who seems to be benefiting and who seems to be lagging behind? Yes, it's laughable all right and we've clearly reached the stage of diminishing returns on the corporate tax front.


pogge said...

Say it with me: demand creates jobs. There's nothing magical about the additional cash that corporations would get from an another reduction in the tax rate. There's nothing qualitatively different about that money that would cause corporations to invest it when they're sitting on the cash they already have.

Corporations will invest and create jobs when demand surpasses current capacity. Demand creates jobs. And the way to increase demand is to get money into the hands of people who will spend it, not people who will hoard it or play the markets with it.

Tof KW said...

Steve, 'Trickle Down' does work to boost the economy and create jobs, but it takes time and only works to a point. And too much of it is certainly a recipe for disaster. The other factor not considered is globalization and the fact that large transnationals are not loyal to any particular country - not even the one they were founded in.

Point is the Liberals were right a decade ago in cutting the corporate tax rates. This was required for us to compete, and it worked. However it makes no sense to continue to cut this tax when we're already very competitive and now stuck with a $56 billion deficit for fiscal 2010. That's a future job killer folks, that needs to be addressed before we continue to run deficits for the next decade or beyond.

BCer in TO has it right. Times change. Plans have to as well to keep up with the times.

By the way, much more effective to target tax incentives with business expansion and investment.

Steve V said...

You have to be pragmatic, not ideological. Cutting taxes when you have higher rates than competition, a massive surplus isn't comparable to a huge deficit, objectively low rate reality. This kneejerk love affair with corporate tax cuts doesn't seem to input present realities, it just supports on the basis of some nebulous ideological slant.

Steve V said...

Meanwhile, the UK moves to curb bank bonuses:


JimmE said...

This is part of the dishonesty of the Neo-Far Right. They hid behind wooly sound bites about Equality, Choice & Fairness. However, they do not have the sand to say what they want to do; ie remove the state as an instrument of fairness & equality to be replaced by the market & charity. The result can be seen in both Texas & California with Ontario's PC's as our own example.
I'm glad to see Iggy getting some traction on the issue, hope it continues.

WhigWag said...

And I didn't want to register w. the Gazette just to make this comment, but it struck me that the columnist's main (? only?) argument FOR still making the cuts was completely dishonest: that not doing so would come out of the employees' pockets as forgone wage increases.

That's B.S., isn't it, because wages are an EXPENSE, and don't come out of the corp. profits being taxed (which are calculated after expenses).

Koby said...

I remember quoting this from a globe and mail article, whose link has since lasped.

"UBS chief strategist George Vasic and analyst Garry Cooper wrote in a 2006 forecast.

Canadian companies will increase their profits by 17.4 per cent on a year-over-year basis, UBS said, compared with a 2006 global growth forecast of 12.1 per cent.

Earnings expectations for the rest of the regions scrutinized by UBS ” the U.S., the United Kingdom, the rest of Europe, Japan, the remainder of Asia, and Latin American ” range from 11 to 14 per cent."

What matters is how high corporate profits are in Canada versus other countries and not the tax rate per say. Companies move were they think they have the chance of making the most money.

Koby said...

Of course, cutting the corporate tax rate even further is not the only example of Canada throwing money away needlessly.

"The authors of that report, published by the Canadian Centre for Policy Alternatives, estimate that Canadian governments could save more than $10 billion a year by creating a New Zealand-style national pharmacare program – one that did away with sweetheart deals to drug companies, eliminated costly tax breaks and rationalized an inefficient system based on multiple private insurers."


Koby said...

Drug companies making out like bandits at our expense.

"A few short moments with the Canadian health-care books is all it would take for an accountant, armed with a red pen, to flip to the section on drug costs, and begin scribbling wildly. For the past 20 years, prescription medications have been the fastest-growing segment of health-care spending: according to the Canadian Institute for Health Information (CIHI), from 1985 to 2007, the share of drugs in the total health expenditure increased from 9.5 per cent to 16.5 per cent; last year the drug bill totalled a whopping $30 billion.

But rather than seek ways to keep costs down, the evidence suggests that government has for years continuously and consciously overpaid. Part of the problem, it seems, is that drug coverage is fragmented — government picks up about 45 per cent of the tab while private insurers and individuals pay the rest — which has acted as a disincentive.

Instead of bargaining with pharmaceutical companies for lower prices, says Marc-André Gagnon, an assistant professor at Carleton University's School of Public Policy and Administration, "the whole pricing system is based on the idea that we need to artificially inflate costs to create a more business-friendly environment." (In exchange for higher prices, drug companies pledged to invest at least 10 per cent of Canadians sales on research and development.) But as he argues in a recent paper, this practice has raised prices without prompting significant spinoff investment: Canada now pays up to 40 per cent more for drugs than other industrialized countries. (He estimates that adopting a national pharmacare program would save an estimated $10.7 billion annually.)"


WhigWag said...

and the European Free Trade agreement the Harpercrites are pursuing wants us to gut our generic drug industry so we can get gouged billions more each year by the big Pharmas. But in QP they say, trust us, we'd never do something like that to Canadians...