Thursday, December 29, 2011

2012 corporate tax cuts in the spotlight today

Good question posed here: "Will 2012 corporate tax cuts fuel or weaken Canadian economy?" The Canadian Centre for Policy Alternatives says the cuts, which Flaherty's office claims will take most corporate combined tax rates down to 25% by 2013, will not help the economy nor is there evidence that reductions to date have helped:
Hugh Mackenzie, a research associate with the Canadian Centre for Policy Alternatives, argued that there is little evidence that corporate tax cuts have stimulated economic activity.

“In fact, the evidence suggests that the investment incentives that have been delivered through the tax system in the form of lower tax rates have simply gone into corporate cash flow and really had no economic benefit,” Mr. Mackenzie said.

He added that agreements between Canada and the U.S. require that American companies must pay federal and state governments in their home country the difference between any lower income-tax rate they are paying on their Canadian operations and what they would pay at home.

“When we reduce our tax rates below those of the United States, what we end up doing is transferring money to the U.S. Treasury,” he said.

Mr. Mackenzie acknowledged that the Canadian economy has performed better than other industrialized countries, such as the U.S., in recent years. But he credited that to tighter regulations in the banking sector — in effect before the Harper government came to power in 2006 — rather than tax cuts.
A Flaherty spokesperson responds citing business interest groups who, not surprisingly, like corporate tax cuts. But, Flaherty spokesperson, isn't the government supposed to represent the people, not business? That's a rhetorical question.

Glad to see an alternative voice being prominently featured and challenging the tax cut orthodoxy.

Related reading which is very informative but from a U.S. perspective, caution: "Mission Impossible: Cutting the Corporate Tax Rate to 25 Percent." [An excerpt: "But cutting corporate rates is much tougher. There, JCT finds there are simply not enough dollars in preferences to get the rate below 28 percent. But even getting to 28 percent is a huge political challenge: Many heavy-hitting businesses such as Google and General Electric already pay effective U.S. tax rates far below that—in fact many pay effective rates well south of 10 percent. They will not willingly give up the tax breaks that make this possible in return for a rate of 28 percent with no subsidies."]