Does cutting the Corporate Income Tax (CIT) promote growth?

[69cat]

Fair enough. No comment on the trickle down economics topic that is on topic, do you understand now how low CIT enables more profit to be held by a company and therefore that company will invest it based on market signals. This applies to every company from the massive corporations to the private business owner running a printing shop in his basement hoping to get a new printer to expand his business if only he never had to pay as much taxes.

[cybercoma]

It allows them to hold it, except they're not investing it. That's the problem I'm pointing out.

[Bonam]

It allows them to hold it, except they're not investing it. That's the problem I'm pointing out.

The money doesn't do the company any good just sitting around as cash. No person can benefit from it, nor does it help the company grow or make more profit. The money will be spent, sooner or later, in some kind of economic activity. If the money is hoarded as cash for now, that just means the growth that would be created by that money being spent is being deferred, not lost. In any case, the money isn't paper bills stuffed under a mattress, it is likely held in some kind of investments, and that means the capital is still working in the economy.

[69cat]

Cyber, you have been conditioned to think that a 'large corporation' is this evil empire like Sobeys, Apple, Sony, pick your name. I am saying you first need to understand the definition of a 'large corporation' as per the tax code as i have already laid out previously. Must have been in the thread with something to do with not voting for Harper because of fiscal record. I bet most 'large corporations' as per the Canadian tax code you will never hear of and there are a bunch with "head offices" within your area of whatever province you are in.

So, you have a "large corporation" with 200 employees, all are share holders, all want to either grow and expand or stay same and take home a bigger pay cheque. Regardless of which avenue is followed, that money stays close to home. And that happens everywhere. Sure, you can keep thinking "large corporations" all have off shore accounts or you could learn and understand the true definition of a "large corporation" and everything i say about low CIT will come into focus. Even my statement that the Harper Gov setting a low CIT is a gift to the provincial governments. Because you will understand that each provincial government has many "large corporations" with head offices in that province and the provincial government has more tax policy freedom then if the Hatper gov set CIT at the highest level of all G7 countries. This is not right wing BS i am spewing, all you need to do is look up the definition of a large corporation and you will see.

I will say this, the media, ndp and liberals want to keep alive what the perception of a large corporation is. Notice how everyone is quick to support any "small business" initiative. You understand there is perhaps about $10M of net worth between the beloved small business becoming the full blown and hated "large corporation".

[Not Yet]

I think not. I think tax breaks should only be given for hiring more employees in Canada and companies who export jobs to China or elsewhere should pay an extra 2% in taxes.

[msj]

All this talk about corporations creating jobs reminds me of the Harper Government bringing in an EI premium reduction for smallish businesses.

Something like get a credit when you file your 2015 T4's (in early 2016) and if your employee EI premiums are less than $15,000 then you will get a credit which will reduce the rate by an equivalent 39 cents per $100 of earnings.

As I pointed out to our staff during our tax update meeting: watch clients payroll closely as to advise them to layoff employees towards the end of the year to ensure they remain eligible for the credit.

I was only partially joking but that pretty much sums up the stupidity of this government.

Edited September 17, 2015 by msj

[August1991]

I was only partially joking but that pretty much sums up the stupidity of this government.

"...this government"

so, msj, aside from corprate tax rates, what do you really think about Harper.

Edited September 17, 2015 by August1991

[69cat]

Interesting mjs, so i read the terms of this credit and find that if you are owner of a business with 20 employees paid $50,000 each to push this job credit to its limit you think that is in your best interests to lay off your staff. Stupidity is certainly the correct term that comes to mind but you applied to the wrong entity.

So your business sense tells you all you need to do is hang an "open" sign on a door and money just rolls in. Guess thinking like that is where the beleif that government can set the CIT at as high a level as desired comes from. Re-read the act and explain your theory on laying off your workforce.

Edited September 17, 2015 by 69cat

[69cat]

Not Yet, applying a 2% tax to companies exporting jobs to China has merit - interesting thought. It is kind of an isolationist view but i do beleive something along that lines could help create incentive to invest at home. It would effect businesses from the small corporations to the mega ones but it is what it is. Government could add some pre-qualifications to it that would help smaller corps avoid the tax to aid them in their endeavours. A small business needs every edge it can to get going and outsourcing to China is likely the only option but a much larger business can better have the means to source or establish supply locally. It may take investment to do so but a company could weigh whether better to pay 2% or invest at home instead.

[Moonlight Graham]

Canada's population growth rate has been between 1-1.2% for the last 35 years.

True. But expected to decrease over the next 50 years, and almost all growth will be from immigration from developing countries. Total pop growth has also almost been cut in half compared to 1900-1960's, birth control being a major factor. People aren't replacing themselves like they used to obviously. From Stats Canada:

Edited September 17, 2015 by Moonlight Graham

[msj]

Interesting mjs, so i read the terms of this credit and find that if you are owner of a business with 20 employees paid $50,000 each to push this job credit to its limit you think that is in your best interests to lay off your staff. Stupidity is certainly the correct term that comes to mind but you applied to the wrong entity.

So your business sense tells you all you need to do is hang an "open" sign on a door and money just rolls in. Guess thinking like that is where the beleif that government can set the CIT at as high a level as desired comes from. Re-read the act and explain your theory on laying off your workforce.

But that's not my business.

If my business was approaching the threshold I would look at my staff and workload levels in the dying months of the year.

I would consider two things: push off the hiring of new/replacement staff until January, 2016 and/or layoff certain staff who I know don't mind being laid off and are willing to collect EI for a few weeks and then come back to work (based on previous experience).

I do this anyway it is just that now there is the possibility of an extra incentive to do it.

That's bad policy.

All they had to do was give the credit to all businesses.

Or better yet, set the rate at a long term sustainable rate without all these silly gimmicks we've been getting the past few years (EI hiring credit, for example).

[cybercoma]

Cyber, you have been conditioned to think that a 'large corporation' is this evil empire like Sobeys, Apple, Sony, pick your name. I am saying you first need to understand the definition of a 'large corporation'

The definition in the OP is clear. It's the Top 60 firms, excluding financial institutions.

[cybercoma]

True. But expected to decrease over the next 50 years, and almost all growth will be from immigration from developing countries. Total pop growth has also almost been cut in half compared to 1900-1960's, birth control being a major factor. People aren't replacing themselves like they used to obviously. From Stats Canada:

You're right, but the discussion wasn't about future population growth.

[Moonlight Graham]

In principle the conservatives and liberals are right. More money in the hands of business should stimulate growth. Unfortunately there are other big factors in play.

...

If you want to grow the economy, Stimulate families to have as many children as they can. For businesses to grow. The market demand must grow. That is the underlining factor. Demand trumps everything for economic growth. Population and the rate at which they can consume.

I agree. But population growth isn't the only factor, as you admit. In order to for demand/consumption to grow, people also need to be spending more, and in order to spend more they need to have more money. Income growth for the bottom 99% of the population has almost stagnated in the last 35 years, while top 1% incomes have had excellent growth. Each top 1% earner can only consume so much, so they invest the rest. So essentially, demand & consumption has come significantly from population growth and increased personal and government debt, not income growth of the masses.

If the masses demand more compensation for their work & an actual cut of Canada's total income growth, they will have more money to spend & consume & give to businesses, & then businesses can take that extra earned money to invest/re-invest, grow their business, create more jobs etc. Everybody wins. If Walmart sells more stuff, GDP goes up! Everybody wins! Why should 1% of the population enjoy the vast majority of growing income & wealth when 99% of the population does the vast majority of the work to create our growing GDP? It would even work to keep total gov tax income the same, but increase corporate and top earner taxes while reducing taxes for the 99% (the masses) so that the masses have more money to spend/consume. I'd rather money be spent on consumption to stimulate the economy and provide the masses with a higher standard of living than have it sitting in some rich person's savings account wasting away. The masses would also have more money to invest in stocks etc themselves, so the top earners don't need to be the only ones investing in business.

The masses (and the government) have also had to take on ever-increasing debt (and work longer hours) in order to sustain GDP-per-capita growth levels (which are actually decreasing over the decades) that disproportionately benefits the rich, who have comparatively/proportionately less or even no debt. People complain that most people spend beyond their means, but if they didn't it would hurt our economy & GDP and gov incomes would fall. Less debt, more income, more spending, more GDP, more wealth! Everyone's happy minus the rich guy who has 8 cars instead of 10.

Edited September 17, 2015 by Moonlight Graham

[Moonlight Graham]

I'll add, the only downside to such a plan I claimed above that I can see (correct me if I'm wrong) is that corporations and top earner may migrate out of the country and take their wealth with them. The US has a significantly higher corporate tax rate than Canada, so that part isn't too problematic. Keeping top earners in Canada, some of our most productive citizens, is a concern.

[hitops]

I'll add, the only downside to such a plan I claimed above that I can see (correct me if I'm wrong) is that corporations and top earner may migrate out of the country and take their wealth with them. The US has a significantly higher corporate tax rate than Canada, so that part isn't too problematic. Keeping top earners in Canada, some of our most productive citizens, is a concern.

It's well known that the effective tax rate in the US about rebates and loopholes, is lower. There are corporations that literally pay almost nothing in some cases.

[hitops]

It allows them to hold it, except they're not investing it. That's the problem I'm pointing out.

You haven't proposed any solution to that however, beyond increasing their taxes which does not logically follow that it could magically cause them to invest. Just ask yourself, if your taxes go up, does that make you buy more stuff?

Liberals believe that for some reason other people or entities 'should' behave differently than they themselves would in the same situation personally. If you wouldn't spend more of your money when taxed more, why should they? If you wouldn't invest when the market looks risky or uncertain, why would they?

Edited September 17, 2015 by hitops

[69cat]

The definition in the OP is clear. It's the Top 60 firms, excluding financial institutions.

Cyber, your query is as the title of this thread and is a valid question. And you have looked up the definitions of "small" and "large" corporations and you know there is no definition in a discussion on CIT that allows one to only speak to the top 60, the ones with the most cash on hand, or the lowest debt to asset ratio, etc on this matter.

People are employed by owners of a company that pays the employee for their time. This cycle will continue as long as the company is making a profit. And, myself as a business owner, will employee more people and generate more wealth in the economy as long as i can create a profit that makes it worth my risk. This is how i become the top 1% in Canada, i take a risk, mortgage my house, start a business. If i am good with a good plan then my business will grow, and it may grow into a small corp, and i may grow it into a large corp and as i grow the economy does well and you pay lower taxes (unless the government pisses money away on spending programs). Im on my way to the top 1% because i took the risk and had everything going my way. At at anytime i can loose it for reasons too numerous to mention, this is why i want profit for my risk. How can my profit be impacted that forces me to stop growing, down sizing, disappearing completely?

1) new competitor with better/cheaper idea

2) my product no longer needed (whale blubber for lubrication maybe)

3) higher cost of labor

4) higher cost of raw material (whales are scarce)

5) higher utility costs

6) down turn in economy (my blubber still needed but less machines in operation)

7) higher taxes

These all determine whether i keep people employed or lay them off and let the government support them (and of course that means the peoplle still working are the ones paying that bill). There are a number of things i can adapt to as a smart business guy like seeing whale blubber is becoming obsolete, or bring new technology in to lower my labor costs. But high taxes and a recession i dont have much say in. And if they hit at once it could be enough to say all the risks are no longer worth the little profit and everyone in my employ is going to be looking for work in a recession.

Low CIT is a factor in whether i decide to take the risk no one else will and employ people or let the government look after them. The higher the CIT the lower my profit, the lower my appetite for risk.

Edited September 18, 2015 by 69cat

[69cat]

MSJ, i follow what you say and in your model it sounds like you are not hiring to the limit you should be. You have the luxury to drop and pickup employees as your business desires and so the credit doesnt fit you well. What i mean is, if your business is profitable, you would hire people that puts you above the $15,000 cap and put them to work and not worry about the credit you leave behind. That $2200 credit could be replaced by $4000 profit in one month if you kept on staff that one guy you pay $25/hr, costs you $35/hr and charge out at $60/hr. And if you had one more guy over that whole year (you cannot employee half an employee full time) then it becomes $48,000 more profit vs keeping one employee iff payroll to trigger credit This is why i say it would be stupid to not hire or lay a person off solely for the credit. If you dont have the work for him in the first place then he should not likely be on your payroll because you are not running a business to pay out for no gain. I expect that there is the odd case where a business is fluttering on the line, but in reality making a decision solely to trigger the credit would be a bad premise.

I am sure an out right credit would work great but the reality is that when ever you make a cut off point then something falls in that grey area of the cutoff. The intent of the credit is to help small businesses so that dictates a cutoff point.

[msj]

I expect that there is the odd case where a business is fluttering on the line, but in reality making a decision solely to trigger the credit would be a bad premise.

I am sure an out right credit would work great but the reality is that when ever you make a cut off point then something falls in that grey area of the cutoff. The intent of the credit is to help small businesses so that dictates a cutoff point.

No, making a decision here is based on knowing one's business.

For me it is easy as we tend to be less busy in the fall/winter. Some work can be deferred to January. Other administration type projects (make work projects) can also be deferred to some extent.

Most businesses experience lulls and opportunities to defer work so it is not just specific to my industry.

Add to this the knowledge of the threshold and why not lay off the EI ski team?

Sure, few businesses are going to be in this position but the point is that this policy puts some businesses in this position and some will act accordingly.

The solution is easy:

Just set the EI rate at an appropriate rate for all businesses.

Don't try to suck up to small business - it's patronizing.

Don't apologize for giving large business the same rate as small - they deserve it as much as we do.

[69cat]

Yeah, i gotcha. You are basically getting the credit free as you are still doing what you normally would. And what you do is perfectly legit, i dont pass judgement on that.

The layoffs of a company and throwing them onto government EI was a common pattern here in Sask during the NDP years. I know readers want to keep the partisan talk out of it but since people crave facts it is important to know this is fact and not "opinion". When royalties are too high, business taxes are too high under NDP gov in Sask so Potash was less profitable. People were laid off for two to four months or more and the NDP paid them in the form of EI. Thus the potash companies kept costs lower in an environment of high taxation. So how did us in Sask benefit from high business taxation? Not only higher personal taxes but next to nothing for economic development in the potash sector. Enter the right wing government with a beleif in low business taxation and potash has taken off, employment soaring and no one getting tossed onto EI by the potash industry. There is zero downside to low corporate taxes. The only question is how much money do you leave on the table by not taxing a little less or a little more once the taxes are set "low".

[msj]

Nonsense.

The world prices for fertilizers don't care about tax rates in SK and that is the real reason SK has looked good: http://www.potashcorp.com/customers/markets/market_data/prices/

Lo and behold, when commodity prices tumble things turn out differently.

[hitops]

Nonsense.

The world prices for fertilizers don't care about tax rates in SK and that is the real reason SK has looked good: http://www.potashcorp.com/customers/markets/market_data/prices/

Lo and behold, when commodity prices tumble things turn out differently.

Actually they do. The larger the difference between production cost (affected by taxes) and market cost, the more profit. It's true that world prices and the cartel in europe dissolving have recently had an even bigger impact, but it's false that our taxes don't matter.

[msj]

Sure, they matter.

But not as much as a quadrupling increase in price of KCl and then a cut in price of 60%.

[69cat]

Msj, as hitops. Potash competes. Big corporations dont simply set a price and rack in profit. Potash competes and when high taxes makes their cost of production higher than the competitor than they dont make sales. They therefore lay off workers beause of high taxes. In no way any different than the 3 4 or 5 lengthy posts already laid out on the subject.

Really, this is probably a good time for all those in favor of high CIT to weigh in and explain how it will work. Heard Mulcair say 3 times in the debate tonight how Harper gov has "given Canadas largest corporations huge tax breaks" as if it was a bad thing. I have quite a few choice words for that rhetoric.