USW@Work – Summer 2008

The United Steelworkers union has published a new edition of our Canadian membership magazine. It includes the following column by yours truly and reports on the SPP counter-summit in New Orleans, our alliance with Environmental Defence, the Dofasco organizing drive, BC’s forest industry, and much more.

The High Cost of Low Corporate Taxes

The 2008 federal budget, entitled Responsible Leadership, was disappointing to Canadians who believe that the federal government has a responsibility to provide leadership in addressing national challenges such as the manufacturing crisis, climate change, economic inequality, and crumbling infrastructure.

Faced with these urgent and worsening problems, the Conservatives chose to deliver a do-nothing budget with the least new spending of any federal budget in more than a decade. This severe lack of funds for important public priorities results from recent tax cuts that will mainly benefit profitable corporations and wealthy individuals.

Lower corporate taxes are supposedly needed to make Canada internationally competitive. However, when the Conservatives took power in 2006, combined federal-provincial corporate tax rates were already well below the US average, among the lower half of Group-of-Seven countries, and only two percentage points above the world average. Nevertheless, the Conservatives decided to cut federal corporate tax rates by seven percentage points. They also shaved the GST by two percentage points and pledged ongoing personal income tax cuts.

The federal government projects that, when fully implemented in 2012-13, these cuts will cost $14.8-billion in lost corporate tax revenue, $14.2-billion in lost GST revenue and $11.2-billion in lost personal income tax revenue. The total annual cost of these cuts, $40.2-billion, exceeds the $40.1-billion that the federal government expects to spend on the Canada Health Transfer and Canada Social Transfer combined in 2012-13. In other words, had the Conservatives not slashed taxes, the federal government could afford to double its spending on healthcare, post-secondary education and social assistance.

There is no reason to assume that corporations will reinvest this tax giveaway. The previous round of corporate tax cuts begun in 2000 has increased after-tax profits to record heights without a corresponding rise in business investment. In fact, Canada’s ratio of business investment to profit has fallen to an all-time low.

Targeted tax measures that provide savings only to the extent that corporations invest in Canada would be more effective and less expensive. The accelerated capital cost allowance for manufacturing was a useful step in this direction, but the 2008 budget continued it only at a reduced rate. In any case, neither a lower rate of tax on profits nor faster writeoffs of capital against profits help the businesses that most need new investment: those that are no longer profitable.

A refundable investment tax credit would provide a much stronger incentive for new investment in Canada, including investment to revitalize currently unprofitable industries. The governments of Manitoba and Quebec have enacted such credits.

All political parties talk about stimulating investment in manufacturing, fighting climate change and poverty, and enhancing public services. However, funds will be available for these purposes only if some of the recently announced tax cuts are not implemented.

Unfortunately, the Liberals promised to slash corporate taxes “deeper than the Conservatives”. Indeed, half of the Conservative corporate tax giveaway was originally introduced in the 2005 Liberal budget but stopped by an NDP amendment. The Liberals allowed the 2008 Conservative budget to pass and voted against a subsequent NDP motion to not implement the corporate tax reductions.

Clearly, electing more New Democrats is the only way to redirect funds away from corporate tax cuts and toward the priorities of working Canadians.

UPDATE (March 10, 2010): Quoted in The Winnipeg Free Press

UPDATE (March 31, 2010): Quoted by NUPGE