Beyond The Commons

 Beyond The Commons

Aaron Wherry covers all the goings-on in and around Parliament Hill. Follow Aaron on Twitter: @aaronwherry

Categories: Beyond The Commons, Capital Read

The corporate tax cut debate

by Aaron Wherry on Thursday, November 4, 2010 1:20pm - 0 Comments

Jasmin Guénette and Vincent Geloso from the Montreal Economic Institute, Maxime Bernier’s old haunt, lament the Liberal promise to cancel future corporate tax cuts.

The more productive a company is, the higher salaries and better overall working conditions they can offer their workers. Highly productive companies can also afford to pay higher prices to their suppliers, which in turn allows those suppliers to offer better salaries and conditions to their employees. Raising corporate taxes, though, reduces the investments that could otherwise have improved worker compensation.

The Canadian Chamber of Commerce has launched a campaign against the Liberal proposal, prompting a formal reply from Liberal finance critic Scott Brison.

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  • Mike T.

    I have a compromise solution to this problem of the Chambers – make tax cuts contingent on increasing the salary and working conditions of employees.

    • Thwim

      I've often wondered what the result on society would be if we passed legislation saying that the person with the highest gross pay in the company, including stock options etc, could not earn more than 100x that of the lowest paid in the company.

      Would there still be a need for minimum wage?

    • Katherine

      It seems sensible that, given the conservative claim that corporations need lower taxes because they create jobs, we should peg corporate tax cuts to the number and quality (based on wages and benefits) of jobs created in non-management sectors. Make up some kind of algorithm that factors in those qualities, as well as the salary of the CEO and other top officials (the greater the proportion of your money that goes to the CEO, the more taxes you pay).

      Create some actual incentives, rather than just assuming that corporations are lovely people who would be spending all their money on making the world a better place if they had lower taxes – rather than being institutions created for the express purpose of maximizing profits.

  • Emily

    All these lovely theories….except companies don't actually do that.

    • Mike T.

      Nonsense! Every company is in a race with each other to stay non-competitive by minimizing profits and maximizing expenditures, for the non-benefit of shareholders.

      Obviously you know nothing of economic theory!

      • brooster2

        And every successful company that shirks paying taxes is freeloading in a society that provides a mature infrastructure, relatively healthy and literate workforce, safe communities, and a stable political environment.

        • Emily

          Socialize the cost, privatize the profit. Yup.

      • Emily

        LOL apparently not. Companies are just itching to be wonderful to their employees I gather.

  • danby

    I can see how decreasing corporate tax rates would make a company more profitable, but am uncertain how it guarantees a higher rate of productivity.
    Better salaries and working conditions depend on the nature of ownership.
    Let's face it, we've seen far too many examples of corporations that increase the bottom line, with very lucrative bonuses for top management and layoff notices for the working stiffs.
    While it is certainly desirable to preserve corporate health, relying on owner benevolence to secure better salaries and working conditions seems a bit of a stretch.

  • pdpd

    Oh please. Cutting corporate taxes is a good idea, but this is the most cynical attempt I've ever seen to promote them.

    Why does anyone care about what the MEI has to say? Their staff CVs are all basically self-referential. So and so got a puppy-mill masters at the LSE , and then a conservative political internship, and then a fellowship at a conservative think tank, and this makes them qualified to work at the MEI? Please. This isn't analysis, but propaganda.

  • Richard_S_Argent

    And everybody in the private sector who has received even a cost of living raise in the last 3 years raise their hands :)

  • BGLong

    Based on his personal and political history I suspect that Mr. Brison dictated with
    his hands behind his back and his fingers crossed.

  • Reverend_Blair

    I'll support further corporate tax cuts when they offer to pay cash for the use of our roads and highways, when they pay cash for the education their employees received, and when they pay cash for the medical care their employees receive. The reality is that private corporations are huge beneficiaries of our social programs. When they say they don't want to pay taxes, what they are really doing is shirking their responsibility. These are the same guys who suddenly have to go to the bathroom when it's their turn to buy the round.

    • bergkamp

      "I'll support further corporate tax cuts when they offer to pay cash for the use of our roads and highways, when they pay cash for the education their employees received, and when they pay cash for the medical care their employees receive."

      Who do you reckon paid for these things in the first place so government can claim they are free? Corporations and other private companies are the only ones generating wealth and whatever government spends has been paid for by companies and people who work in private sector.

      • Reverend_Blair

        We did. Just as we are the ones who generate wealth. When's the last time you saw a CEO shovelling rock or swinging a hammer? Funny thing about the men in the fancy suits, they produce less and less of any value and take more and more of the cash.

  • Geiseric

    Salaries and Accounts Payable are expenses against net income. Higher taxes IMPROVES their relative ROI, not the other way around. This guy's just looking for handouts.

  • madeyoulook

    What a dumb argument. Productive & profitable companies try to become more productive; they will continue to find ways to MAXIMIZE SHAREHOLDER VALUE by limiting input costs of EVERY category. They'll squeeze every cost they can get away with (suppliers, labour AND taxes included) in order to charge highest possible competitive price to satisfy demand (from customers coming at them from the other end looking for the lowest possible price), and make profits. AND THAT IS A GOOD THING.

    Punishing employers with uncompetitive taxation will simply send employers elsewhere. Cutting corporate taxes invites employers to stay, and new ones to come, to even HAVE employees. Only very indirectly might that boost wages, if the competition for labour in this attractive environment gets a little strong.

    It is unseemly for an "economic institute" to try and sound like a left-wing "high salaries for all the oppressed workers!" nutso when that isn't even a correct argument.

  • bergkamp

    "As my favorite macroeconomics professor pointed out, it is impossible to tax a corporation because the corporation is just a fictional entity designed to pass profits back to its owners. When you say you're going to "tax a corporation", the corporation doesn't go to the money farm to harvest some more cash to give to the government so we can expand job training for unwed mothers — some real person is going to pay that tax.

    When you put a tax on wages, such as social security or the unemployment tax, the employer doesn't say, "oh, well, profits dropped 15% this year; better tell Merrill Lynch to issue a 'sell' rating" — they pay their employees less, both to lower the tax burden and to recover the lost profits. They hire fewer employees, because each employee is now more expensive. This costs real people money. When you up the corporate tax, either the employees pay, because the firm can't afford as many of them; the customers pay, because the firms have to raise their prices to cover the taxes; or the shareholders pay because dividends are lower and the company is worth less.

    And before you liberal types start rubbing your hands in glee at the thought of those pained shareholders, keep in mind that the largest shareholders in companies are insurance companies, which invest in stocks in order to make the money they need to pay off when your house burns down; and pension funds, making the money to take picketing US Steelworkers off the streets and put them into good homes. The other big holders are mutual funds, which is what most of us have our 401(k)'s in. So when you say "I want to tax corporate profits", try silently saying to yourself "so that Mom can sell the condo in Florida and move in with me." Jane Galt, January 2002

    Jane Galt, my favourite blogger, explains why corporate taxes should be eliminated.

    • Horton

      Very good points, especially the last paragraph about who corporate owners really are.

    • Mike T.

      I absolutely guarantee you that if you are a salaried employee and a 10% tax were put on your wages tommorow , your pay would not decrease by 10%. And companies will not hire one more person than they have to under ANY circumstances. Yes, sometimes companies start firing left and right to stay in the black, but either this is not viable long term or the employees were not strictly necessary.

      • Richard_S_Argent

        shoulda been a thumbs up there..my bad.

        • Thwim

          Fixed.

    • lgarvin

      I've heard that argument before and it is compelling on it's surface – but only that far.

      If a "fictional person" should not pay taxes then that fictional person should also not use the infrastructure constructed and financed by us non-fiction people. No use of the legal system, no use of physical infrastructure like roads, power grids, plumbing systems, no policing, emergency services, etc. You fictional people don't get to live in the real world and leach off of the efforts and funding of us real folks. That seem fair?

  • pogge

    The federal corporate tax rate has been declining fairly steadily since 2001. During the same period, income inequality has steadily increased with incomes growing rapidly for a very few and stagnating for everyone else. Whatever benefits may have come from lower tax rates have gone mainly to CEOs and their small circle of friends and not to employees in general. The Montreal Economic Institute is full of something and it isn't the milk of human kindness.

  • Thwim

    We complain when the government gives money to people who need it, calling them layabouts and a drain on the economy, even though those people simply turn around and spend that money on things they need, thus generating a need for more things which generates a need for more jobs, etc.

    We laud the government when it gives money to people who don't need it, calling them burdened investors who should be freed to help the economy by creating jobs, even though those people simply turn around and use that money to, at best, produce more stuff that there wouldn't be enough demand to justify producing otherwise, and more usually give that money to people who don't need it in exchange for their companies which don't generate any further need or produce anything more than they used to — they just concentrate the flow of resources to an increasingly smaller number of people.

    And then we wonder why the economy has such problems these days…

  • Katherine

    The more productive a company is, the higher salaries and better overall working conditions they can offer their workers. Highly productive companies can also afford to pay higher prices to their suppliers, which in turn allows those suppliers to offer better salaries and conditions to their employees.

    Oh, sure they could, in theory. That doesn't give us any evidence that corporations are going to do any such thing, or that the (record-low) taxes they are paying are the only things preventing them from paying their employees more.

    If they wanted to pay their employees more, they could accomplish it by cutting some money from the hundreds of millions of dollars they pay their CEOs and top management. But they won't – and if we cut taxes, the extra money is going to go straight into the pockets of those managers, not of the average worker.

  • Jenn_

    "Highly productive companies can also afford to pay higher prices to their suppliers"

    If anyone, anywhere, bought this argument after that little piece of flotsam, they need their head examined. As if a company, individual, or monkey would say, "oh no, the invoice is too low. I would prefer to pay more for my widgets"

    The only ones who might do that are governments.

  • TJCook

    "Raising corporate taxes, though, reduces the investments that could otherwise have improved worker compensation."

    Everyone repeat after me:

    Canceling a tax cut that hasn't happened yet is not a tax increase.
    Canceling a tax cut that hasn't happened yet is not a tax increase.
    Canceling a tax cut that hasn't happened yet is not a tax increase.

  • Horton

    If you were told you were getting a pay increase, and you budgeted and planned around that increased income, would you not feel like you got a pay cut if the pay raise was unexpectedly cancelled by new management?

  • Richard_S_Argent
  • TJCook

    Pardon the snark, but I would probably feel as though I had invested in an income trust a few years ago.

    There's plenty of warning here that this promised tax cut depends on the Conservatives' continued electoral success. Nothing here equates to a tax increase.

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