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Hill Dispatches: Corporate tax cuts create no jobs while starving government of revenue -- new CLC study

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South of the border we have the strange phenomenon of the "true conservative" Gingrich attacking his opponent Mitt Romney as a predator capitalist.

"You are using the arguments of the left," Romney tells the former House Speaker.

Indeed, it is a peculiar meeting of minds: the Occupy Movement and Newt Gingrich agreeing that folks like Mitt Romney are self-interested profit-takers and predators, not job creators.

Here in Canada we have a similar meeting of the minds on the impact of corporate tax cuts.

Just about everyone who has examined the issue -- business, labour, right and left -- agrees that the cuts in the federal corporate tax rate from 28 per cent 10 years ago to 15 per cent today have not created any significant investment in job-creating activity.

To start with, there is the fact that Canadian firms are sitting on huge piles of cash.

Canadian corporate cash reserves have climbed nine per cent since last year and 27.3 per cent since 2007.

Statistics Canada reports that Canadian businesses hold more than $583 billion in Canadian currency and deposits, and more than $276 billion in foreign currency.

"Cash on the sidelines"

Even Prime Minister Harper has noticed this, and both he and his Finance Minister admit they are frustrated.

"There's a lot of money sitting on the sidelines, looking for opportunities... " Harper said not too long ago, and Jim Flaherty has made similar comments.

The head of the Canadian Chamber of Commerce, Perrin Beatty, agrees, but explains: "Businesses don't invest for political reasons. You're not going to go off and hire somebody if you think you're going to be selling less stuff next year than you did this year."

In other words, if they are not convinced they will make a sufficient profit, firms would rather sit on their cash than create jobs with it. Which begs the question: what is the point, then, of continuing to cut their taxes?  The net result of those tax cuts, so far, has not been an increase in private sector jobs but a looming massive decrease in public sector employment and investment.

It would be fair to say that corporate tax cuts are not only not job-creating; in a real sense, they are job-killing!

$4 billion per year cut to pay for corporate tax cuts: CLC study

The Canadian Labour Congress (CLC) issued a study today that confirms this.

"Cuts to corporate taxes have resulted in a major loss of government revenues," the report states, while they have not produced investment in machinery, equipment, or new plants.

"Instead," the report points out, "We have seen a big increase in dividend payouts and in financial assets."

The report shows that most of  the increased profits resulting from tax cuts have either gone into "cash in the mattress" or have been distributed as dividends, often to foreign investors.

The CLC tells us that in 2010, Canadian non-financial corporations paid 49 cents out of every dollar in after-tax profits to shareholders, about half of whom earn more than $150,000 per year.

The harshest reality that emerges from today's report is that the government is forcing itself to cut $4 billion per year to, in effect, pay for its corporate tax cuts -- tax cuts that even the Prime Minister and head of the Canadian Chamber of Commerce admit have, so far, yielded no meaningful job creation results.

"In 2012–13," the CLC study concludes, "The federal government expects to collect $33.1 billion in corporate income tax revenues, based on a corporate income tax rate of 15%. If the corporate tax rate were still at 21%, where it was when the Conservatives took office, revenues would be $13 billion higher."

That's a lot of revenue to forego when you're carrying a significant debt load and the economy is growing at a sluggish rate.

Helped us avoid a much more severe recession?

From the business side they will argue that the important fact is not how many jobs the corporate tax cuts created; it is how many more jobs might have been lost without those cuts.
 
Tax specialist Jack Mintz of the University of Calgary admits that "this whole issue of cash on hand for corporations plays very well for the people who are critical of corporate tax cuts in terms of helping the more powerful."

Despite that, Mintz argues, all that corporate cash in the mattresses is not really so bad. In fact, it "has helped us avoid a much more severe recession because Canadian companies have good balance sheets. If they didn't, they would have got into a lot more trouble."

But there's a harder edged argument in favour of continued reductions in corporate taxes and corresponding cuts in public sector investment. It is an argument similar to the one invoked in favour of Mitt Romney's Bain Capital and that company's supposed "predatory" practices. 

The argument holds that capitalism's pursuit of "enlightened self-interest" is, to borrow a phrase from Churchill, "the worst system -- except for all the others!"

Over the long term, the market economy's natural process of "creative destruction" will mean that the best and the brightest, the strongest and the fittest, the most creative and the most innovative will survive. The rest will wither and die -- and there will be inevitable "adjustments." The best and wisest course for government, according to this view, is to "get out of the way" as much as possible, and let the free market operate according to its own imperatives.

Lowest corporate tax rate in the G7

Cutting taxes for corporations is part of "getting out of the way" and makes Canada "more competitive." In fact, today's Canadian Labour Congress report shows that Canada now has the lowest corporate tax rate in the G7 -- and that is when we take Canadian provincial and federal rates together.

Again, Harper and Flaherty will not likely disagree with this fact. They will more likely point to it with pride. This is case where the facts are not much in dispute. The difference of opinion is how we look at those facts -- and how we experience them.

Supporters of corporate tax cuts have no choice but to admit that there does not seem to be much immediate, short-term benefit. But, they say, if we take a long-term perspective we will see that the tax cuts will do their work.

In the short term, however, Canadian corporate tax cuts mean that we face potential cuts in public services such as food inspection, environmental enforcement, public broadcasting and even health care. All of that and much more is on the table. We will have to wait for the federal budget to get a clearer picture.

There is one thing of which we can be almost certain now, though. We can be quite sure that there will be massive cuts in public sector jobs. The government has been unamiguous on its plans on that score.

Knowing it is all just a part of the ultimately benign "creative destruction" process of the market economy is hardly likely to comfort the victims.

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