March 6, 2014

The Failure of Corporate Tax Cuts

I am reading the Great Revenue Robbery -- put out by Canadians for Tax Fairness and published by Between the Lines.

I picked up the book months ago when Dennis Howlett was in town on a book tour. I'm slowly making my way through the book. Alot of interesting stuff.

Jim Stanford's chapter on the failure of corporate tax cuts is a particular eye opener. Since the late 1980s, federal and provincial governments have steadily cut the corporate tax rate.

The economic rationale behind cutting corporate tax rates is that businesses will invest more if they can keep more of their profits.

Turns out it hasn't really worked.
Since the investment spending has declined, but business cash flow has increased.

So check this out. The federal corporate tax cuts since 2011 came at a cost of $6 billion in lost public revenue -- but $6 billion in extra cash for corporations. That generated $600 million in new business investment, basically 10 cents of investment for every dollar in tax cuts.

If that $6 billion had been used for public investment projects instead --"such as infrastructure construction, public transit, or low cost  housing" -- it would have provided a big enough boost in GDP (Gross Domestic Product) to generate more than $500 million in private business investment.

In other words, the federal government could have generated almost as much private business investment by skipping the corporate tax cut and investing in public goods. We could have had more public infrastructure and more private business investment, not too mention alot more well-paid jobs for people, too.

To get the full picture, you have to read the book.

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