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

[cybercoma]

Your post makes me think you either didn't read anything I've posted or just can't understand any of it. Either way, get back to me when you figure out what's going on.

[69cat]

Lets get back to your initial conclusion that trickle down economics dont work. And further along you think (lets use the correct term) 'large corporations' should be taxed more and CEOs make too much money.

Ok, as stated all political parties think it does work. We agree that all political parties follow that doctorine.

Ok, so how do low corporate taxes help a working stiff. Well, spent 20 years working full time, have been employed by multinational corps, have been worker/shareholder/part owner of a private company with revenues reaching $15M a year and i farm in Sask. So i have seen things from many angles.

First in the businesses i have been involved in, typical profit margins are around 10% with 20% phenomenal. When recently employed with Siemens i had Canadian managers sign off on bids up to $1M at 12% margin, and they were fine with that. So a combined tax rate of say 40% on 10% profit is a big bite, no? As our private business we had a couple years around 20% profit but as we grew things get more complex and it becomes harder to make the same profit because of increased expenditures (qa programs, additional safety reqirements, more meetings, bigger jobs with same risk of reduced profit if things go bad). So lets use 15% profit for our personal risk in our business endeavours. It does mattef if the gov takes 30% vs 40% of our profit.

As a company, your goal is to grow, add more product, more revenue. You do this by investing your profits. If the gov takes them you cant invest it yourself therefore less grass roots growth.

On the farming side where i am a consumer, if the implement manufacturer is making 15% profit and the economy tightens, or the gov takes more via more taxes then it reduces their profit to work with and expand. And if times get really tight, they need money to survive and they need to keep their employees to be able to ride things out. So they have fixed costs therefore the price of the product to me increases. Trickle down economics.

[69cat]

And further to the comment on ceos of large corporations rolling in cash, well, the companies i have seen in my careers have no such excessive cash. I dont deny that you could probably find 50 companies in Canada where that applies but is it fair to paint all the other 'large corporations' with the same brush when someone comes up with the bright idea for them 'to pay their fair share'. It is my opinion that the majority of large corporations already pay their fair share as well as keeping the economy rolling. So using what a ceo makes is a few samples of that group is hardly a fair way to reach such conclusion.

[cybercoma]

Where did I say CEOs make too much money? They do, as is evidenced by the growing disparity in the ratio between their pay and employees, but that wasn't once mentioned by me in this thread. I'm not discussing CEO compensation at all here.

The problem that's been identified here is that corporations are sitting on cash in reserve. They're not investing it into jobs and they're not investing it into R&D or infrasturcture. So the idea that cutting their taxes, so they can have more money to create jobs and invest in expanding is wrong.

In further support of that is the evidence that higher CIT actually relates to more investment in infrastructure. And do you know why that is? Because those tax dollars get redistributed to those signalling demand to the corporations. Which, surprise, surprise, tells them what they need to build and where they need to grow.

Right now they're sitting on money and have no idea what to do with it because the money isn't making it back to those who buy from the corporations. Without any signal from the market, they just hang on to the money until they know what infrastructure they need. They're not going to go building stuff willy-nilly and they're not going to go spending money on R&D if the markets don't signal a demand for new things.

So the problem we have right now is that they're holding onto money like a constipated turd, which has resulted in our sluggish economy with minuscule growth and as of the last two quarters a new recession.

Edited September 15, 2015 by cybercoma

[69cat]

Here is a question for you then, when you say these companies are sitting on a pile of cash, will you also post what their comparitive debt liability is also. You really dont think that graph implies these corps are debt free do you?

So, why does a corp sit on cash? As stated, most companies are looking to grow when the opportunities arise. It could be a copoetitor selling out, an upturn in economy, landing a big contract requiring need to add more people/infrastructure. I dont think it is really for us to predetermine under what circumstances are for spending cash. Simple matter is you need to have cash to act on opportunities and you need a sound financial position to borrow.

Here is your question, if a company had no cash on hand and was heavily financed what is the liklihood of securing more financing to act on opportunity? I would say very low, may be possible, but sitting on cash makes it more possible.

A company sitting on cash makes a lot more sense than one without cash because the gov took it, correct?

[cybercoma]

It's laid out there in the OP. The measurement used was the proportion of cash against all assets. As the CIT falls, the proportion of assets that are cash holdings increases. In other words, they're not spending the tax savings on things like jobs and infrastructure, as the tax cuts are advertised to do.

[Michael Hardner]

A company sitting on cash makes a lot more sense than one without cash because the gov took it, correct?

Not necessarily - it depends on what is being done with the cash. If it is being used to pay a salary that will recirculate into the economy, and the salary is being used to do something that is productive then it's probably doing better than if it's sitting offshore somewhere.

[hitops]

Where did I say CEOs make too much money? They do, as is evidenced by the growing disparity in the ratio between their pay and employees, but that wasn't once mentioned by me in this thread. I'm not discussing CEO compensation at all here.

The problem that's been identified here is that corporations are sitting on cash in reserve. They're not investing it into jobs and they're not investing it into R&D or infrasturcture. So the idea that cutting their taxes, so they can have more money to create jobs and invest in expanding is wrong.

In further support of that is the evidence that higher CIT actually relates to more investment in infrastructure. And do you know why that is? Because those tax dollars get redistributed to those signalling demand to the corporations. Which, surprise, surprise, tells them what they need to build and where they need to grow.

Right now they're sitting on money and have no idea what to do with it because the money isn't making it back to those who buy from the corporations. Without any signal from the market, they just hang on to the money until they know what infrastructure they need. They're not going to go building stuff willy-nilly and they're not going to go spending money on R&D if the markets don't signal a demand for new things.

So the problem we have right now is that they're holding onto money like a constipated turd, which has resulted in our sluggish economy with minuscule growth and as of the last two quarters a new recession.

As others have mentioned, the US effective rate is lower than the Canadians, whatever the official rate is.

However, we at least came close and a few years ago, Forbes rated Canada the best place to invest in the world. The tax rate does make a difference.

But ultimately your question is about getting businesses to invest. Businesses spend their money for the same reason you or I do - if it looks like they will get good value or good ROI on the money. Obviously during the crisis everybody tightened up, afraid that investments would go bad. In the last few years things have improved in the US, but in Canada while we did ok during the crisis, lately we are doing poorly.

But why is this confusing? If I was a business looking at the Canadian economy as a whole, I would not expand. Firstly their is popular clamor to raise taxes and punish corporations. Nobody would be eager to risk investment until they see how that plays out. If you are looking at an election with possible increases, it makes more sense to wait, see what the rate is, then decided whether to move the jobs out or stay depending. Secondly there is plenty of volatility in the market right now worldwide. Volatility always chills investment.

Just put yourself into their shoes, and it is not hard to figure their thinking. I can say this because I keep money in a personal corp and invest it, and I just did exactly what I described above. It's obvious Canada is doing poorly, so I put my invested money about 70% to the US, 10% Canada, and the rest elsewhere. And that has played out as predicted.

When it's you, you make rational decisions. You seem to believe that others should make irrational ones, I supposed to satisfy something that you want? If 2 cars are the same price and utility to you, but one falls in value twice as fast as the other, you will pick the one that retains value. Why would you expect a large corporations, who hires people far smarter than you or me, who do nothing but think about investment returns full time, to behave differently?

[69cat]

From wiki, the definition of an asset

Probably the most accepted accounting definition of asset is the one used by the International Accounting Standards Board.[6] The following is a quotation from the IFRS Framework: "An asset is a resource controlled by the enterprise as a result of past events and from which future economic benefits are expected to flow to the enterprise."[7]

It does not say anywhere that there is no debt owing on it. I have many assets o the farm in all forms of the definition above, the item is in my name and i use it for future economic benefits. But i can tell you that you better not assume there is no debt against it. I will sit on as much cash as i can but still carry debt if it makes sense.

As previous post says, companies sitting on cash is smart business.

[cybercoma]

But why is this confusing? If I was a business looking at the Canadian economy as a whole, I would not expand.

What you're arguing says that CIT should not be cut to help a lagging economy because corporations won't know what to expand into or invest. I think we have a rare moment of agreement. Though this is the exact opposite of Tory economic thinking.

Edited September 15, 2015 by cybercoma

[69cat]

I understand that position Michael, i am right now addressing why a company may sit on cash. If our own business had no more desire to grow then we would pay it back to the shareholders and it would be spent in the economy. My point therefore being that a company could follow either doctorine depending on the circumstances. Our company did both over various years.

[69cat]

No what hitop is laying out is EXACTLY what is playing out in Alberta right now. Not just because of low oil but also because of the change in government. So you are correct that corps dont know what to expand or invest in when discussing Alberta - specifically because it now has ndp gov. And Alberta also raised their provincial tax rate, anyone fail to see why Alberta is a big deal with all that has now been laid out.

And can we now understand why the Alberta ndp has not released a budget after 6 months in power? The reason is they are waiting for the federal election is done before that bombshell drops in the ndp camp. If they were so high on themselved thst budget would be out before this next national debate.

[PIK]

One reason why gas is still high at the pumps. The NDP have spook them so much they are getting as much money as they can grab.

[cybercoma]

Riiight.

[Accountability Now]

No what hitop is laying out is EXACTLY what is playing out in Alberta right now. Not just because of low oil but also because of the change in government.

I agree but I only have unsubstantiated, anecdotal stories to offer which don't really help prove anything. With that said, I know a number of high ranking business owners/managers who have outright stated to me that they are sitting on their cash at this point until they know what the NDP are going to do. They are sincerely hoping and thinking that the NDP will work with business but until the royalty review and budgets come out, these guys aren't moving an inch.

This of course doesn't suggest much for outside of Alberta, especially on the Federal level where Harper has been in for a decade. So on excuse on government instability there.

[69cat]

Sounds like you are not understanding things yet cybercoma. Which topic needs further explaination:

Low cit helps the economy

All parties favor low cit

The Harper gov is giving the left wing govs a gift by setting low cit

Higher cit is bad for Alberta and business is holding back till a budget is released

The ndp not releasing budget is due to incompetence or holding Alberta economy hostage for purpose of federal election

Trickle down economics

Or did you have a typo and in fact understand all things discussed thus far. I hope so because this is how a voter becomes an informed voter.

[cybercoma]

Low cit helps the economy

You've not proven that and the data I've posted says otherwise.

All parties favor low cit

Wrong, but utterly irrelevant even if it was true.

The Harper gov is giving the left wing govs a gift by setting low cit

Your opinion, which I care literally nothing about.

Higher cit is bad for Alberta and business is holding back till a budget is released

Again, you've not shown that higher CIT is bad. Also, the relationship between CIT and lower infrastructure and R&D spending, as well as a sluggish GDP go back at least 30 years. So this is another completely irrelevant talking point.

The ndp not releasing budget is due to incompetence or holding Alberta economy hostage for purpose of federal election

This thread was never about party politics, but you seem intent on taking it there because you don't have anything to substantiate your opinions that are contradicted by the data in the OP.

Trickle down economics

Hasn't worked. Doesn't work. And will probably never work given the information we have about the effects of it over the last 35 years.

Or did you have a typo and in fact understand all things discussed thus far. I hope so because this is how a voter becomes an informed voter.

I understand what you're posting. The problem is that you haven't substantiated any of your opinions and apparently can't understand what it is that I've posted.

[Accountability Now]

Its not just Canada and the US who have lowered their taxes.

You may be right Cyber...it would be nice to have higher CIT but it may just not be possible in the global economy that we are facing.

[hitops]

What you're arguing says that CIT should not be cut to help a lagging economy because corporations won't know what to expand into or invest. I think we have a rare moment of agreement. Though this is the exact opposite of Tory economic thinking.

In the long term, businesses want a predictable, stable tax environment on which they reliable do long term planning.

The question is what kind of planning. If the tax rate is high and stable - you can reliably know it is time to move your plants out of the country. If it is low and stable, obviously this is more encouraging to stay. If it is volatile, then a wait and see attitude makes the most sense.

In general, businesses like less regulations and less complicated tax code. But even more than that, business like to beat their competitors. As such, big business actually loves really complicated tax laws because that gives them a big advantage over small business. Big business already employ full-time experts to manage and deal with that, where in small business it is often the ownner who has to deal with it, or pay much higher marginal costs to an accountant (relative to the size of the business). More regs, more taxation complexity, entrenches the position of big business vs small and new entrants.

Edited September 16, 2015 by hitops

[cybercoma]

As long as we're reifying things, businesses want no regulation, no tax, and free labour.

It's not a virtue to give businesses what they want.

[-1=e^ipi]

You've not proven that and the data I've posted says otherwise.

I've posted links to studies earlier in this thread. But no one wants to address that.

[69cat]

Ok cyber lets go simply

I say all parties are in favor of low cit. My position supported by:

1) words spoken (not quoted) by Justin Trudea and Tom Mulcair saying there will be little to no change in corporate tax rate

2) provincial govs of all parties following same idea of low cit

You say "wrong". Explain why my statement is wrong then we can move on.

[cybercoma]

Ok cyber lets go simply

I say all parties are in favor of low cit.

That's completely irrelevant. How many times do I have to say that?

[69cat]

Well, you said it is wrong and cannot justify your position. I guess more accurate to say that is your opinion and is irrelevant.

Therefore, after already explaining an example of how trickle down economics work in my personal life and your response is "hasnt worked, doesnt work". No point going further, is there? Dont know how else to say it. When our business is doing well, we hire more people, expand, create more opportunities, the owners/shareholders are making more money, buying houses, enjoying more recreational spending and such. Opposite is that when companies get squeezed on profit margin they have to raise the price of the product or go out of business. The whole trickle down of companies going out of business, less workers, more unemployed, higher taxes because fewer workers.

Same thought process i wrote earlier that seems self evident but you are clearly looking for a full paper to document all claims of "my opinion" and i am not prepared to invest my time here to create one. So, i guess you have a win on this topic eh?

[cybercoma]

Well, you said it is wrong and cannot justify your position.

It is wrong, but it's also off topic. It doesn't matter what the party policies are here.