Drummond: Businesses can't blame taxes anymore

[mentalfloss]

Why do we reward corporations with low taxes if they aren't putting revenue to good use?

This is one of the worst records in Canadian history and one of the worst among developed economies. Unless productivity improves, the Canadian economy will be condemned to a very low rate of growth, and in turn this will impinge upon Canadians’ incomes and the ability of governments to fund the programs the public desires.

Traditionally Canadian businesses blame the tax regime for both outcomes. The large jump from the small business tax rate to the general rate has been described as an obstacle to growing out of the small business tax ranks. And indeed, prior to the beginning of the corporate tax revolution in 2000, businesses faced a higher marginal tax rate on corporate income as they began to lose the small business preferred rate than the marginal personal income tax rate they would face if they took money out of the enterprise. But that is no longer the case. Yet we still observe a cluster of businesses right under the small business income tax threshold.

Similarly, high taxation on capital might have once explained the lack of capital expenditures in Canada but that no longer cuts it as an explanation, especially relative to the United States. Yet, it is puzzling why Canadian businesses didn’t ram machinery and equipment investment through the roof from 2003 to 2007 when they had unprecedented retained earnings..

Drummond: Business out of excuses in productivity slump | Productive Conversations | Financial Post

Edited July 3, 2012 by mentalfloss

[cybercoma]

It just doesn't f'ing work. Period.

You give a business a crapload of breaks in a piss poor economy when no one is buying. They sure as shit aren't rolling the dice and taking a gamble on expanding their businesses. The only incentive companies have for expanding their businesses is demand from the bottom. Demand from people with money that are buying their stuff. So what you need to do in these kinds of crap economies is get more money into the hands of the families that are struggling. This allows them to buy the things they need with that money. They will demand goods and the companies that are in demand will see their revenues go up. They will know how and where to expand because people will be voting with their wallets. Handing money to the companies instead does absolutely nothing, but pad the bank accounts of rich people. It goes under their mattresses or in a hole in their backyards and sprouts capital gains for them. What it doesn't do is create jobs, infrastructure, or projects. It doesn't trickle down to anyone.

[PIK]

With the media saying the NDP could win the next election, everyone is hoarding money. lol

[dre]

It depends on the environment whether ANY tax cuts will make their way into the economy or not. With savings rates as low as they are now its much more likely that people would pay down debt with the extra little bit of money a modest tax cut might free up. Same as true regardless if you cut on the supply or the demand side.

The bottom line is, that all this easy credit has virtually guaranteed a recession. Interest rates will go up over the next 3 years, and people will start trying to pay down all this debt, and thats going to mean a big drop in consumption.

Why would suppliers or retailers invest a whole lot in expand Canadian operations in this environment? Were about to have a deep and long recession.

[wyly]

It just doesn't f'ing work. Period.

You give a business a crapload of breaks in a piss poor economy when no one is buying. They sure as shit aren't rolling the dice and taking a gamble on expanding their businesses. The only incentive companies have for expanding their businesses is demand from the bottom. Demand from people with money that are buying their stuff. So what you need to do in these kinds of crap economies is get more money into the hands of the families that are struggling. This allows them to buy the things they need with that money. They will demand goods and the companies that are in demand will see their revenues go up. They will know how and where to expand because people will be voting with their wallets. Handing money to the companies instead does absolutely nothing, but pad the bank accounts of rich people. It goes under their mattresses or in a hole in their backyards and sprouts capital gains for them. What it doesn't do is create jobs, infrastructure, or projects. It doesn't trickle down to anyone.

that was predicted at the beginning of the recession, the top end hoards would their cash in bad times riding out the recession, and it's proven correct...there is no trickle down, never has been, never will be...it's the 99% that drive the economy with their spending not the 1% that feed of off us...

[Keepitsimple]

You don't invest when people aren't buying - but you DO invest when they are preparing to buy. You want to time it right. We are an exportinmg nation - we are dependent on other nations' buying. When the tide turns, Canada will be in terrific shape because of the "cash we're hoarding" and the attractive tax set-up. We are well-positioned to go like gangbusters when our trading partners start a genuine recovery.

[eyeball]

You don't invest when people aren't buying - but you DO invest when they are preparing to buy. You want to time it right. We are an exportinmg nation - we are dependent on other nations' buying. When the tide turns, Canada will be in terrific shape because of the "cash we're hoarding" and the attractive tax set-up. We are well-positioned to go like gangbusters when our trading partners start a genuine recovery.

So we have to wait until other flat-assed broke people are prepared to buy, but where are they going to get the cash they need?

I get this image of a bunch of countries who know they'll need to tax the shit out of their 1% to get the ball rolling but they're all to afraid to make the first move.

I've seen this play out amongst a bunch of bears surrounding a dead sealion on a beach. When the tide came in the sealion floated away and the bears all missed out.

[Michael Hardner]

there is no trickle down, never has been, never will be...it's the 99% that drive the economy with their spending not the 1% that feed of off us...

Actually, there is always a trickle down, and there always has been. There is always more wealth at a top strata, but the difference is that more private control over wealth will lead to bigger booms and busts. If the public can turn on the taps when private investment wanes, then you can mitigate that effect.

[Canuckistani]

You don't invest when people aren't buying - but you DO invest when they are preparing to buy. You want to time it right. We are an exportinmg nation - we are dependent on other nations' buying. When the tide turns, Canada will be in terrific shape because of the "cash we're hoarding" and the attractive tax set-up. We are well-positioned to go like gangbusters when our trading partners start a genuine recovery.

Similarly, high taxation on capital might have once explained the lack of capital expenditures in Canada but that no longer cuts it as an explanation, especially relative to the United States. Yet, it is puzzling why Canadian businesses didn’t ram machinery and equipment investment through the roof from 2003 to 2007 when they had unprecedented retained earnings..

Looks like for our businesses the time is never right to invest in productivity. The low dollar and immigratin wage depression allowed them to get away with not investing in new equipment, just hire cheap labor and make a profit anyway. Since they haven't modernized, they won't be able to go like gangbusters when if there's a genuine recovery.

I've been hearing about lack of Canadian productivity since the '80's. And that the Canadian worker is more productive than the American worker, all things being equal, but that Canadian management lags so far behind its American counterpart.

Edited July 4, 2012 by Canuckistani

[cybercoma]

Actually, there is always a trickle down, and there always has been. There is always more wealth at a top strata, but the difference is that more private control over wealth will lead to bigger booms and busts. If the public can turn on the taps when private investment wanes, then you can mitigate that effect.

Tax benefits to business is not the most effective use of taxpayers money. Putting it into people's pockets so they can demand products and services from businesses is far better. If people aren't buying, then giving more money to businesses is useless. They don't know where to invest or how much to invest because the demand isn't there. As people continue to struggle and government services are reduced because the government's fiscal capacity is hindered by lowered corporate taxes, demand will only continue to lag. The best, most effective way to stimulate the economy is to put money into the hands of those that will demand products and services from companies, so they can choose themselves what companies deserve their 'stimulus' funding.

[CPCFTW]

Tax benefits to business is not the most effective use of taxpayers money.

This attitude is the problem.. Businesses ARE the taxpayer. They pay wages which are taxed as employment income, they pay corporate taxes, and shareholders/owners of business pay taxes on private business growth and profits.

The only other true taxpayers are the small minority who are self-employed.

Tax breaks to business is not "spending taxpayer money", it is letting taxpayers keep more of their money.

Anyway, France's socialist govt just hiked taxes on big business and the 1%.. I guess we'll see how that is working out for them in a few years.

[dre]

Tax benefits to business is not the most effective use of taxpayers money. Putting it into people's pockets so they can demand products and services from businesses is far better. If people aren't buying, then giving more money to businesses is useless.

You can have the same problem with stimulus no matter where you insert it into the economy. Consumers right now have extremely low savings and they are just as likely to hoard the money as corporations.

The problem is you can only stimulate for so long! All this easing creates debt, and eventually people will decide they have too much debt and not enough savings. If you give them a tax cut theyll just make a bigger payment on their maxed out credit cards that month.

The longer we keep doing this for, the bigger and deeper a recession we are going to have.

[Canuckistani]

Actually, raising EI payouts is a very good way to stimulate the economy. Return is 1.6 times investment. People on EI don't hoard money, they spend it for expenses. Same with other means of boosting low income. Business isn't going to ramp up in the face of no demand, even if taxes are 0.

While you are right that we can only stimulate so long, it's also true we can austerisize ourselves right into the ground. The trick if finding the right balance, and knowing where and when to spend and where and when to cut. I would say no govt gets this right, each cuts where they see not getting any votes anyway, and spends on its cronies. This means the poor are always sucking hind tit, since unfortunately they don't vote. We need a rabble rouser who will change that.

Edited July 4, 2012 by Canuckistani

[CPCFTW]

Actually, raising EI payouts is a very good way to stimulate the economy. Return is 1.6 times investment.

cite?

[madmax]

cite?

Moodys

http://www.npr.org/templates/story/story.php?storyId=128449659

July 11, 2010

A study by Moody's Analytics recently found that every dollar spent by the government on benefits for the unemployed produces an overall return of $1.61 for the economy. Guest host Lynn Neary talks with Moody economist Sophia Koropeckyj about what makes unemployment checks stimulate the economy, and why other types of government spending don't do nearly as much good.

You can UNROLL your eyes now....

Edited July 4, 2012 by madmax

[bush_cheney2004]

Moodys

http://www.npr.org/templates/story/story.php?storyId=128449659

This is an American reference...how does it apply to Canada?

[Canuckistani]

Moodys

http://www.npr.org/templates/story/story.php?storyId=128449659

July 11, 2010

A study by Moody's Analytics recently found that every dollar spent by the government on benefits for the unemployed produces an overall return of $1.61 for the economy. Guest host Lynn Neary talks with Moody economist Sophia Koropeckyj about what makes unemployment checks stimulate the economy, and why other types of government spending don't do nearly as much good.

You can UNROLL your eyes now....

Thanks for that. I just read it in the newspapers when the discussion was all about how to spend the stimulus money. Another good reason is that it requires no ramping up and no separate distribution system - ie it can be put into play tomorrow. And be scaled back quickly if things improve. I think spending money on re/training is also very well spent.

[CPCFTW]

I'm on my phone, so I haven't had a chance to read the report, but I'm pretty sure the report doesn't say anything about "raising ei payouts", as Canuckistani implied. For example, if you raised ei payouts to 120% of annual income, everyone and their grandmothers would be asking for a layoff.

Borrowing from China to give the unemployed more money and create false demand is not a solution. It is the problem.

[cybercoma]

I'm on my phone, so I haven't had a chance to read the report, but I'm pretty sure the report doesn't say anything about "raising ei payouts", as Canuckistani implied. For example, if you raised ei payouts to 120% of annual income, everyone and their grandmothers would be asking for a layoff.

Borrowing from China to give the unemployed more money and create false demand is not a solution. It is the problem.

It's just that easy, eh? You just ask for a layoff and the employer concedes.

[CPCFTW]

It's just that easy, eh? You just ask for a layoff and the employer concedes.

Pretty much yeah.. It's much easier for employers to lay off than to jump through the hoops required to fire employees.

It also would make being laid off far more palatable to employees, who will likely be less productive since they won't care if they are laid off. It would be the left's "survival of the most unfit" dream come true.

[WWWTT]

This attitude is the problem.. Businesses ARE the taxpayer. They pay wages which are taxed as employment income, they pay corporate taxes, and shareholders/owners of business pay taxes on private business growth and profits.

The only other true taxpayers are the small minority who are self-employed.

What a freekin load buddy!

What about the property taxes I pay?!?!

What about the gas I have to put into the car that I paid for?!?!?

My clothes,my food,my hydro bill,cable bill,gas bill?!?!?!

My tools,the material I bought for the renovations,how about the furniture and all the other things I have had to buy around the house buddy?!?!?!

You do not have a clue how our economy works????

But somehow you now know how to fix it now????

Good luck!!!

WWWTT

[Shady]

Businesses are in limbo because of the uncertainty of the American economy, and especially the failing Eurozone. If you're scared about the possible economic future, you'll sit on as much cash as possible to ride out any potential future rough patches. It's not really rocket science.

[WWWTT]

Businesses are in limbo because of the uncertainty of the American economy, and especially the failing Eurozone. If you're scared about the possible economic future, you'll sit on as much cash as possible to ride out any potential future rough patches. It's not really rocket science.

Oh ok then I'll tell all the people that I write cheques to every week " Sorry guys I can't pay any of these bills cause of Greece"

Think about it Shady then get back to me!

WWWTT

[cybercoma]

About that American economy, Shady... You keep blaming socialist governments in Europe for the problems. How then do you explain the problems in that bastion of free markets, the US, especially considering the market issues began there?

[bush_cheney2004]

About that American economy....

Either way...always best to blame somebody else's economy for problems in Canada!