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

[hitops]

Sure, they matter.

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

Right, just like the price in oil hurting us. But how does this make taxes irrelevant? In the long term, the lower the taxes, the more production from here vs other places.

The world potash price is set by supply and demand, but where it is mined depends both on where it is, and how expensive it is to mine it. That's where competition comes in, and with low taxes we compete better.

Edited September 18, 2015 by hitops

[msj]

No doubt competitive taxes help.

But it is nonsense to go on about how economies improve and do so well when the reason they are doing so well is because of the increase in commodity prices rather than a decrease in taxes.

The point is, the correlation between lowering taxes and improving economies is trivial compared to the increase in commodity prices that magically make everything look better.

You are mistaking correlation with causation. Lowing taxes did SFA.

[hitops]

No doubt competitive taxes help.

But it is nonsense to go on about how economies improve and do so well when the reason they are doing so well is because of the increase in commodity prices rather than a decrease in taxes.

The point is, the correlation between lowering taxes and improving economies is trivial compared to the increase in commodity prices that magically make everything look better.

You are mistaking correlation with causation. Lowing taxes did SFA.

You're missing the point. Commodity prices can fluctuate, but the given size of your piece of the pie is highly relevant to your tax rates. With sudden high or sudden low prices, it is still good to have a larger market share of that pie. It is still good that we are a major oil exporter, whether oil is $40 or $100 a barrel. With very high taxes, we would be exporting much less oil, which means less revenue at any price.

Using your logic, you shouldn't care what the salary is of the job you are applying for, since the value of Canadian dollar can sometimes affect your purchasing power more than differences in salary.

Edited September 18, 2015 by hitops

[TimG]

The point is, the correlation between lowering taxes and improving economies is trivial compared to the increase in commodity prices that magically make everything look better.

I would agree with one caveat: regulations. Government regulations have a far greater effect on the health of businesses and the economy in the long run. Too little regulation the public health and welfare is put at risk - too many and businesses are strangled. Canada, for the most part, has a reasonable balance and because of that balance it was able to take advantage of the commodity boom when it happened. However, the endless push for more and more regulations will take its toll and it will show up in reduced investment and fewer jobs in the long term even if the taxes are lowered. Reduce regulations (or at least keep them at the level they are at now) and you can likely raise taxes a bit without great harm. Edited September 18, 2015 by TimG

[69cat]

Mjs, you were the one that posted the chart and you dont understand what it means. As hitops says, it shows prices fluctuate. You want to see something interesting, dig up a graph going back 20 years and then make your judgement. You want correlation? What did the ndp do when prices were low, did they accept that margins were tight and make big reductions in taxes to get the economy rolling? No. They wanted "their fair share". And what about the price of potash after the huge spike? Do you think costs have gone up like labour, utilities, environmental etc that would make them correlate not too bad when the ndp was in charge? And what about when the price was high, did Brad Wall say lets take our fair share now? Opposition ndp was clamouring for it. And taxes were kept low so industry says "we had a spike and we did not get screwed over by the gov demanding higher taxes, we have a partner we can work with so we will invest more".

Manitoba has been explored and there is potash 80 miles from our two largest mines. When potash was booming here and new mines starting up i can think of a reason why Manitoba wont be in the game.

[msj]

I would think the 1987 legislation allowing the SK government to take control of potash mines if and when the cabinet ordered it would be a considerable regulation that would harm investment much more than tax rates, for example.

As for comparing prices over a longer period of time: you're the one asserting that 20 years of prices is somehow relevant so you do the research to support your own claim.

[69cat]

Not following what you mean by some 1987 legislation, potash industry was privatized in 1990. You have a document saying our government can sieze any mine at anytime?

No need to do research, employees being out of work and on EI is enough. But i guess a guy working at the mines during these times such as myself is just offering opinion so we will leave it at that.

The door is wide open for someone to put forth a well reasoned arguement on how high CIT is good for the economy. Should be easy because the Harper government is widely claimed to be idiots for this policy.

http://www.macleans.ca/economy/economicanalysis/why-the-ndps-exact-plan-for-the-federal-corporate-tax-rate-matters/

This article does it better than a simple guy like myself, even has some charts. It does touch on one point of mine that higher CIT set by fed policy will impact provincial revenues so we are a little farther along in thinking it is not just MY "opinion" that Harper gov tax policy is a gift to the provincial governments, ndp and liberal alike.

[msj]

Not following what you mean by some 1987 legislation, potash industry was privatized in 1990. You have a document saying our government can sieze any mine at anytime

See Potash Corp's 1995 SEC filing which mentions this as a risk. Found it quite interesting. Not sure when it stopped being a risk (if it has stopped).

[69cat]

Msj, not trying to be an asss, I did a quick search and without knowing what i am looking for, it is not easy to find a document.

I can see where there could wording like that now that i think about it. Since a mine occupies a lot of space on Canadian soil and we have things like tailings piles that are an environmental concern it is very likely there is something written somewhere that allows a Canadian entity to take possession. Say for instance the American owner abandons the site and now we have an environmental issue with the tailings that needs to be addressed sooner than later. I would expect the legalese would be quite lengthy, but yes, i can see you coming across such a document. My thoughts would be the foreign owner is likely quite comfortable with the document and maybe it is standard practice? Dont know, way beyond anything i have rudimentary experience with.

Regarding CIT, another thought i have is provincial government can change royalty structures also, so they can decide to vary cit to target all businesses, or various royalty structures depending on what industry is desired to be impacted. It gets pretty complex, suffice to say government can play a major role in whether a company like a potash mine can excel or simply plug along.

[msj]

Page 14/15 in this PDF: http://www.potashcorp.com/media/POT_10K_1995.pdf

[Freddy]

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.

I think if we look at money as equating production, its easy to see a trend on the rise.

The trend is that the difficulty of entry into business startups is getting higher and higher, with a huge initial investment in robotics and specialized tools to be competitive in today's market.

I think this can be added into the equation as it is only the ultra rich who can afford these million dollar machines and facilities that can produce a product or service at such a fast pace, that he can compleat with other existing companies.

[Icebound]

Full Disclosure.... I did not read every word in this thread...

But when analyzing complex economic theory and practice, this two-minute audio clip seems to summariize it best:

http://www.cbc.ca/player/Radio/Ideas/ID/2675124985/

Australian analyst describes economists as the new witch doctors in society

Chief Economist of The Australia Institute Richard Denniss argues for an open and honest approach in economics, and thinks that many experts are paid to say things in public which they don't even believe privately.

"Economists" cannot explain the unexplainable, ....they tend to exist to provide support to their leader's pre-conceived ideas.

...

[69cat]

Moonlight Graham, what you are not including in your thoughts are how the guy going to Walmart to stimulate the economy got his money in the first place. In my Potash example, a healthy industry not cut down by high government tax policy (and other policies) will expand and grow and not layoff workers. A healthy industry wil put two guys on Walmarts doorstep. And industry needs other industry to support it, manufacturing for example is needed to support the needs of a large businesx.

What you are looking at is the consumer economy for lack of better term. But how did he get his money in the first place? If you say government, then how did the government get its money? Yes, industry and the taxpayer working in industry. Remember a employee working for the government generates $0. And that employee has no significant impact on most industry unless it is supplying directly to the consumer. Regarding my potash model, it doesnt matter if the gov gives the citizen $10 or $10,000, the potash industry will not generate money to give to the worker or the gov in the first place therefore the gov cant give away that $10,000.

So you need to understand were the guy gets his money from in the first place, it is certainly not from the government.

[Michael Hardner]

How does somebody getting paid by the govt generate $0?

[69cat]

Michael, where did the government get its money?

You are a tax payer working as a policeman (gov service). They pay you $60,000 a year and you pay them $15,000. Government is now - $45,000 in this arrangement. Did the government generate $60,000 for the economy or is the economy now - $45,000.

Since the correct answer is the economy is - $45,000, the government needs three guys working at the potash mine making $60,000 each and paying $15,000 each just to balance that policemans wage. Now start thinking what happens when either the potash industry adds workers or laysoff workers.

The lay off of one worker actually impacts threefold (or more). One less guy paying taxes, same guy is now on EI increasing gov spending more, and as we have established, the potash mine is there to make a profit and therefore would only layoff if profit is not there, this means that the gov is getting less money through corp taxes.

So, you can see that a healthy business environment is a BIG deal.

There is talk of a knowledge based economy or green energy economy but all the same mechanisms apply. You will not create your knowledge based company if the government is going to tax the crap out of you and not make it worthwhile. And you cannot create "green energy solutions" indefinitely with gov subsidies. A subsidy is a gov expenditure and also means the company is not generating much of any money to return to the gov. And, if you invest all this money in theses subsidies and a company in Denmark comes out with something better a few years later then your Canadian venture is done gor without paying back the investment.

Absolutely is gov needed to get a business started, but it must be seen as viable and able to stand on its own in the free market otherwise it will always be you, the taxpayer paying for it rather than it paying you back.

Edited September 19, 2015 by 69cat

[Michael Hardner]

Michael, where did the government get its money?

From taxes.

You are a tax payer working as a policeman (gov service). They pay you $60,000 a year and you pay them $15,000. Government is now - $45,000 in this arrangement. Did the government generate $60,000 for the economy or is the economy now - $45,000.

I'm not an expert in the economy, but I would say you had $45,000 of money circulating in the economy.

Since the correct answer is the economy is - $45,000, the government needs three guys working at the potash mine making $60,000 each and paying $15,000 each just to balance that policemans wage. Now start thinking what happens when either the potash industry adds workers or laysoff workers.

Well, they could privatize policing, cut taxes and everybody could pay more for policing. Would that help ?

So, you can see that a healthy business environment is a BIG deal.

Or you could nationalize all industry, digitize and make public all cash transactions... or create an entire user-pay society too. Economy is a question of how you allocate resources, so your take on it presumes a narrow band of possible approaches.

But you're generally correct about how it works yes.

[69cat]

Michael, regarding the $45,000, i use it for generalizing as yes, money goes back in the economy. I could argue i make a couple of bad investments in the stock market and it truely is gone. So just speaking generally.

And now you get into ideologies, does a government run market out perform the free market in regards to the benefit of its citizens? I guess you need to look at other countries for those examples. Something that is beyond my knowledge so will take a pass on.

[Michael Hardner]

Michael, regarding the $45,000, i use it for generalizing as yes, money goes back in the economy. I could argue i make a couple of bad investments in the stock market and it truely is gone. So just speaking generally.

That money also goes back into the economy though.

And now you get into ideologies, does a government run market out perform the free market in regards to the benefit of its citizens?

Good question. Also a very complicated question. It depends, I think.

I guess you need to look at other countries for those examples. Something that is beyond my knowledge so will take a pass on.

Well, we can look at our own country too. Our health care is not run as an open market and the costs are relatively lower than other countries that do. Our telecom, though, has less of an open market and the costs for telecom are higher. Insurance, banking... you can argue about these until the moon comes up... depends on the business environment, culture, topology what have you.

There are some truisms, though: open competition is generally a good thing for consumers. Oligopoly can cost more than government-run markets. Government sets the rules according to arbitrary squawking from the loudest people with the most influence.

[69cat]

Msj, re potash agreement i found reference to it but did not say what pcs paid to mosaic. It ended dec 2012 though.

Reading your link sure brought back memories of being in post secondary when the potash corp was privatized as well as the Prince Albert pulp mill. Being young and not involved in the economy i was against it and caught in the NDP ideas at the time. But looking back now, i take the right wing view that private business will do things better than government run. No doubt one can find examples to the opposite but from my Saskatchewan experience this is my beleif. I would say SaskPower is likely better as a public corp for example. No doubt things are good now and potash will oversupply and price will drop and our economy will suffer but i would also say that we will still be in the game and be there for the next cycle. If potash stayed on the sidelines those mines would be built in another country. But our business environment brought them here instead, and for the better without having a crystal ball handy.

[69cat]

Yes michael, but government does not necessarily do what the loudest squawker says, to hold to that would imply your government is not smart enough to make the right decision on any topic. Not a good feeling. Sometimes it simply boils down to which idea works best 'at that time'. I am not of the thinking that privatized health care cant work. I work at times on equipment at, and even compete against SaskPower and will be hardpressed to say they will do anything better than private business. The big difference is SaskPower will always serve all customers equally where as private business would target the larger centers. However rules could be written for that and City of Saskatoon and Swift Current are privatized and doing very well so maybe one could argue that SaskPower should go as there exists a precedent to compare to.

[Michael Hardner]

...to hold to that would imply your government is not smart enough to make the right decision on any topic.

I don't like the implicit assumption that there is a 'right decision' or that - if there is one - it's knowable. Government is setting the rules to the game, balancing out interests. Squawking is part of it, sometimes called the 'political economy'.

I am not of the thinking that privatized health care cant work.

Me neither. Absolutes don't really work when discussing economics.

I work at times on equipment at, and even compete against SaskPower and will be hardpressed to say they will do anything better than private business. The big difference is SaskPower will always serve all customers equally where as private business would target the larger centers.

That sounds 'better' than private business... to some.

However rules could be written for that and City of Saskatoon and Swift Current are privatized and doing very well so maybe one could argue that SaskPower should go as there exists a precedent to compare to.

Yes, as with your example government is balancing off interests (city vs rural) and trying to get re-elected by keeping people happy, generally speaking.

[Icebound]

So you need to understand were the guy gets his money from in the first place, it is certainly not from the government.

"money" (wealth) originates in labour. ... it does not matter whether that is "private" or "government" labour.

If I have 50 people sitting on their asses in a field, there is no "money" being generated.

If 1 of them goes and digs a well, on the "trust" that he will get something in return, that starts the generation of wealth... Another one might go out and rustle up some wood to build a shelter, "trusting" that he might get some water from the 1st guy in return, and a 3rd one might start to plow the soil and plant some seeds to grow food., in the trust that he will get some water and shelter from the other two...... and now you have the start of an "economy".

Somebody else decides that rather than trading water directly for food or for shelter is too cumbersome, and develops the idea of a paper IOU that we can call "currency". That guy is not really adding anything to the wealth, but his contribution makes the economy more convenient than direct barter.

Somebody else decides to teach the rest of the layabouts how to till the soil. This, too, is "overhead, not really adding to the wealth per se, but necessary in order to make the economy and generate greater participation.

Thus, a government employee's labour generates "money" in the very same way that anybody else's labour generates "money".

His labour might be "different", in the sense that is is usually to offset overhead that the "private" business did not cover off.... for example, if government did not provide food and shelter for the destitute, would private business have to spend extra labour ("money") to clean up the rotting bodies of the starved from the roadside?

"Taxation" is simply a way to pay for necessary overhead. Just because "private business" elected not to pay for that overhead directly, it still has to be paid....

In any case.... the discussion of the past few pages, and especially between Michael, 69Cat, and msj, just proves the point that economics is quite analagous to the craft of witch doctors as described here:

http://www.cbc.ca/player/Radio/Ideas/ID/2675124985/

Edited September 19, 2015 by Icebound

[69cat]

Icebound, yes getting into more detailed topics we can talk about that government employee contributing to the economy but i can still stick to generalizations. If the government worker shows those people how to till the land and generate wealth, the government will get a return. However the worker is still trading his labor for a form of return and the government is still collecting taxation so as to pay other government employees elsewhere to do something similar and currency works easier than figuring out how to trade labor. This should all be correct with your analogy.

But if the guy tilling the soil says there is not anything in this for me because the government takes all my earnings and so they all stop doing it, where is the return from the government workers involvement, what happens now the tax dollar has stopped flowing to the gov, and now how does the gov finance its next endeavor such as clearing up the rotting bodies. A government paying a policeman, to protect a fireman who has a nurse to take care of his injuries does not create any revenue for the government to pay these people, the money can circulate within but no new wealth flows in to allow the gov to build a new school. Though they have traded their labor for pay. The money comes in when the above people are also providing service for the guy who wrote a book and sold it to the farmer who produces for the guy swinging a pick in a mine taking a worthless piece of ore and bringing it to someone who needs it.

I see a partnership where both business and government work together.

No doubt economics can be like a form of witch craft, i prefer the analogy "the numbers dont lie but people lie with numbers". So you see why i stick with generalizations and basic concepts. If i start posting lots of charts and graphs then i am falling into that trap. Thus i try to keep to what i experience, i have been involved in a few businesses that were not influenced at all by economists, just people trading labor for pay and paying taxes. And inturn the government provides basic services, law and order and security. To go deeper than this is beyond my experience so i stick with basics and hold to what i say is true, but your mileage may vary.

[hitops]

"money" (wealth) originates in labour. ... it does not matter whether that is "private" or "government" labour.

Of course it matters.

A private person uses labour to create wealth. The government uses wealth of others (taxes) to create labour, to create wealth. Since they had to use wealth to create wealth, nothing is really created. Money was simply moved around, and much lost to waste along the journey.

But it's not just that government doesn't create any wealth by creating labour, it's that one it creates the labour, it it exceptionally difficult to get rid of it if it is no longer needed. Then it is pure waste, no longer breaking even. The private person stops the labour once it is useless, returning to no loss, no gain.

[Icebound]

Of course it matters.

A private person uses labour to create wealth. The government uses wealth of others (taxes) to create labour, to create wealth. Since they had to use wealth to create wealth, nothing is really created. Money was simply moved around, and much lost to waste along the journey.

But it's not just that government doesn't create any wealth by creating labour, it's that one it creates the labour, it it exceptionally difficult to get rid of it if it is no longer needed. Then it is pure waste, no longer breaking even. The private person stops the labour once it is useless, returning to no loss, no gain.

That is some of that "witch doctor" thinking that Richard Denniss talks about.

Government (... by means of taxes...) is simply that part of the economy that private industry has overlooked.... often because they are unable, but sometimes because they are unwilling....

For example... I am a farmer and I raise a steer, butcher it, and I sell the meat to you. One thing that I have NOT done and paid for, is some sort of procedure that guarantees that that meat is healthy and safe for consumption. I argue that it is.... you are skeptical. So the two of us have to hire a third party expert to inspect the meat and be the arbiter...

That meat inspector is PART of the economy, part of the transaction. His labour is as important to the creation of wealth... to the creation of that meat product... as is mine in the raising and processing of it.

You may want to argue that that 3rd party expert does nothing to create wealth, but without him, my meat is worthless, and YOU are hungry, or sick, or worse.

So now somebody has to pay him for his labour...., and whether is should be me as producer, or you as consumer, or some combination.... is the eternal argument. "taxes" is what we collect from you, me, or both.... effectively increasing the price of the meat.... but that "government worker" is as much a part of our transaction as are the two of us....

It is a complete fallacy to disconnect the overhead that government pays for.... from the day-to-day operations of the economy that CREATED that overhead.... government and taxes are thus PART of the economy... not some wealth-sucker that you would have us believe.

Finally.... we can argue about efficiency, but that applies whether it a private OR a government activity.

...