An NDP plan to slash corporate tax rates?

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[url=]Corporate tax cuts to go to US Treasury as Obama closes loophole[/url]

US will tax its companies the difference between foreign taxes and domestic ones to slow outsourcing


TORONTO, June 22, 2009,, with YouTube video: An international union is warning that future corporate tax cuts in Canada will amount to "federal treasury transfers" to the US Treasury.

Erin Weir, chief economist with USW-Canada (United Steelworkers) says the Obama administration is closing a loophole that used to let American companies pocket big savings by operating overseas. At the same time, the loophole resulted in competition between countries such as Canada to drop tax rates more than other countries to attract these companies.


Under existing rules the Obama administration will now enforce, any difference between what US companies pay in taxes abroad and what they would have paid at home gets taxed back by the USA. As a result, a great percentage of the massive corporate tax cuts, like the ones Stephen Harper introduced in his 2008 budget, flow directly into the US Treasury, since many of the most profitable companies in Canada are US-owned branch plants.

The USA taxes corporations on a worldwide basis, explains, Weir, which means that, when an American company brings profits from Canada to the USA, it pays the 35 percent American tax rate on those profits minus the credit for whatever taxes it has already paid in Canada. "As long as Canada's corporate taxes at both the provincial and federal levels add up to at least 35 percent, that provides enough credits to meet all of the US tax obligations. If, however, Canada cuts its corporate tax rates below that 35 percent threshold, we run the risk of redirecting tax payments from Canadian governments to Washington." . .


With federal Liberals committed to even deeper corporate tax cuts than the Conservatives, Weir advises caution. "The obvious policy implication here is that Canada should try to maintain a combined federal provincial corporate income tax rate of at least 35 percent to make sure we keep the revenues in our country."


And the so-called opposition party in Ottawa has provided 79 confidence votes for the Harper agenda so far.

Stephen Gordon

Erin would be right if the only possible source of investment in Canada were US corporations.

But it isn't, so he isn't.


They are a big enough share to make the concern realistic.

And he did say "run the risk" rather than "it will happen".

What happens about low tax states within the US?  Are the Feds imposing a minimum %35 tax rate?  I suspect not, US states can race to the bottom (or at least to the Federal tax rate) but other countries cannot.


Stephen Gordon

What Obama's measure will mean is that if US investors want to take advantage of lower Canadian corporate taxes, then they will have to invest in Canadian corporations instead of US corporations.

Not a bad thing, really.


The NDP doesn't need any sort of grand plan to slash corporate tax rates.

In Manitoba, they just do it.

Stephen Gordon

And good for them, then. Corporate taxes aren't a progressive measure.


Stephen Gordon wrote:

What Obama's measure will mean is that if US investors want to take advantage of lower Canadian corporate taxes, then they will have to invest in Canadian corporations instead of US corporations.

Not a bad thing, really

In what would they invest? We've refused Chinese investment in Alberta oil sands for some reason or other. And we've been bleeding manufacturing jobs for a number of years in central Canada. According to Mel Hurtig, pension funds and banks have been complaining about a lack of investment opportunities in Canada since more than 12,000 foreign takeovers of Canadian businesses and assets occurred since 1985 and mostly by Americans.

Catchfire Catchfire's picture

Ex-babbler Stephen Gordon: You can count on politicians to cloud corporate tax debate

Let’s start with the theory. Lower CIT rates raise the net rate of return on investment, and these higher rates attract more savings from both foreign and domestic investors; this increased investment increases output, productivity and wages. I can see two ways that we might incorporate diminishing returns into this story: either the world could run out of savings, or Canada could run out of productivity-improving investment projects. Both are possible, but neither is likely to happen in the medium term, if ever.


The first scenario can be dismissed easily enough: one of the sources of the global imbalances that are still troubling policy makers is the ‘savings glut’ that has laid waste to much of the world’s financial system. Even when those global imbalances are resolved, world savings are still going to be large enough that Canadian policy makers can reasonably assume that they are infinite.



As for the idea that Canada is about to run out of productivity-improving investment projects, well, the Liberal Party of Canada would do well to review David Dodge’s remarks at last year’s Canada 150 conference or read this recent CD Howe study. It is far, far too early to declare victory on this front. Under-investment and low productivity will be at or near the top of the Canadian policy agenda for some time to come.

I'm not onside with Stephen's argument, but he did link to an interesting graph on international corporate tax rates since 1985.



Hey Catchfire - thanks for reviving my Orange Shift thread (or one of them)! I had totally forgotten about it, don't know if I support it now, and not sure if I ever did. I was just tired of the "NDP can't manage the economy", so I wanted to change the frame at bit.

The Orange Shift™ - Tax the Wealthy, Not the Economy!


And by the looks of that graph, I say, after looking at that graph depicting corporate tax rates really dropping off a cliff in the years leading up to Neoliberal Meltdown Part III by 2008, I'd say it wasn't all peaches and cream, or suds and pretzels or whatever for the ideology.

Hmm... Let's ask Stephen Gordon what he thinks about the economic benefits of racing to the bottom now, shall we?

[url= debunks corporate tax cuts[/url]


The Orange Shift™ - Tax the Wealthy, Not the Economy!

Goddam Liberals stole my idea. Well, except for the important parts.