Low Taxes for Whom? Flaherty’s Rhetorical Retreat

I missed last week’s federal budget, but was pleased to see the quantity and quality of same-day analysis posted on this blog. Jim wrote an excellent piece, “Corporate Taxation and Investment in the 2011 Federal Budget,” about the corporate tax debate in post-budget media panels. But what struck me was David’s point about how the budget itself did not address corporate tax cuts.

The budget was entitled, “A Low-Tax Plan for Jobs and Growth.” Jim Flaherty’s speech began by listing the GST cuts, child-care cheques, TFSAs and higher personal tax credits, but never got around to mentioning the deepest and costliest tax cuts of all. Indeed, he never used the term “corporate tax,” “corporate income tax” or “business tax.”

Of course, the 352-page budget plan had to use those terms in projecting corporate tax revenues and outlining modest but welcome initiatives to extend accelerated depreciation for manufacturing investment and limit the use of partnerships to defer corporate tax payments. However, previous budgets had presented schedules of future corporate tax rates, graphs of Canada’s “marginal effective tax rate,” etc. Budget 2011 did not even try to make a case for falling corporate tax rates.

A couple of months ago, the Conservatives seemed to think that a rock-ribbed defence of corporate tax cuts was a winning strategy. They even organized a road show promoting these cuts. Surely the budget would have been the ideal document to marshal some evidence (if any exists) in support of claims that lower corporate taxes will pay for themselves, prompt investment, create jobs, and make Canada internationally competitive.

Instead, the Conservatives seem to be retreating into general rhetoric about “low taxes” and “securing our economic recovery.” That is probably a wise political strategy given the unpopularity of corporate tax breaks.

The good news is that the right is losing the public debate about corporate taxes. Budget 2011 implicitly conceded what this blog has long argued: targeted measures linked to actual investment (like accelerated depreciation) are far more compelling than across-the-board giveaways.

If the Conservatives win the election, they undoubtedly will press ahead with corporate tax cuts. However, they cannot win the election by campaigning for lower corporate tax rates.