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

[69cat]

Icebound, you are right in your analogy, not arguing that. The argument remains that you need business (wealth generators) for the government to obtain money to provide services. If you have one farmer and 10 inspectors you have a bunch of government wealth generators but you will not have enough wealth created to support government. If you have 10 farmers and one inspector then life is better for everyone including the taxpayer.

I am saying that it is better to have a potash mine employing people rather than the government employing people through EI. The worker may still get the same take home pay and so spend it in the ecomomy, but the government will soon be out of money. Is this not correct?

[hitops]

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.

You're just talking about transaction costs, and it is extremely rare that the government ever reduces those costs. It nearly always increases them. Certain things can only be government - emergency response, police, fire, courts, military, and environment issues around tragedy of the commons. But that's not what we're talking about, we're talking about the massively expanded role of government today far, far beyond those things.

Even meat inspection - there are obvious private solutions. We would do what we do now with a thousand other things - buy based on reputation. If they poison enough people, they risk huge market share losses as people avoid them. Can't prove it? Private companies can obviously test and testify for you. Better yet - other companies would rise up for independent testing - and certain meat producers would do all their stuff through them so they can market that extra safety. You could choose to buy from only those producers, etc etc. There are a thousand solutions to most problems in the market, most of which we don't even know about until they are needed.

People like the idea of organic meats, less chemicals, friendly to animals etc - better get government to force stores to go organic right? Not at all. A million stores sell organic meat, certified as you like. The market meets demand for niche, or for safety, or for status, or whatever feature you are looking for.

See socialists never ask "what would I do", when considering if something would work. I know what I would do, with a wife and 2 small kids who I care about. I would only buy meat from a reliable company, who tests 100% through a company I know to be reliable. I don't need the government to do that. My guess is that, just like in other industries when comparing government vs private services, they would greatly lower my risk of being poisoned, along with lowering the cost to me for that increased safety, compared to now.

But this is just me humouring you for those things that yes, would be part of the transaction costs anyway. But that's not the issue. The issue is the billions that the government spends on things that are complete waste, that would not otherwise be part of the economy. The classic example is the job which had a role 50 years ago, but is now obsolete, but which is it absolutely impossible to fire the employee from, because it is government.

Edited September 20, 2015 by hitops

[Icebound]

Icebound, you are right in your analogy, not arguing that. The argument remains that you need business (wealth generators) for the government to obtain money to provide services. If you have one farmer and 10 inspectors you have a bunch of government wealth generators but you will not have enough wealth created to support government. If you have 10 farmers and one inspector then life is better for everyone including the taxpayer.

I am saying that it is better to have a potash mine employing people rather than the government employing people through EI. The worker may still get the same take home pay and so spend it in the ecomomy, but the government will soon be out of money. Is this not correct?

See, that is exactly my point about the "witch doctor" aspect of economic theory.

Nobody can answer those questions definitively.

It could be that if it takes 10 inspectors to keep the meat healthy, then that is what it takes and the cost of meat will be that much higher.... but on the other hand... the proceeds are now spread amongst 10 people who might now be in a position to buy some meat themselves, and that could encourage the farmer to produce more. Or without them, the illness and death of workers would kill industry completely.

On the other hand, the higher cost might kill demand, and nobody buys meat.... there is no definitive way to know.

About the potash mine.... If the mine is profitable, it does not matter who pays the workers.... the money is coming out of the mine's proceeds whether the government or whether "private" industry is running it. It only becomes a manner of what is the more efficient management..... it could be run as a co-operative, or a worker owned enterprise, or public shareholder owned, or closely held corp, or government owned...or who cares....

The form of management and/or ownership will only affect how we want to divide the proceeds... government might be more prone to use some proceeds for other social projects... cooperative or worker owned might funnel more of the proceeds to the workers and less to management... shareholder might tend to squeeze the workers and push more proceeds to executive and shareholder owners, ... closely held will depend on benevolence of owners/managers.

In today's world, the "best" system is probably that one that encourages the most possible people to work.... for a suitable livable return. If we run it with one man and a computer.... does that provide a living wage for a greater number of computer programmers, designers, and maintainers... than if we simply pay 10,000 workers with shovels and buckets.... nobody can say for sure.

In ALL cases.... there will almost certainly be overhead that the mine will conveniently ignore or try to pawn off on somebody else... subsize their power?.... repair the roads they use? .... Somebody has to pay for that, and that is where "tax" comes in.... it does not matter whether we tax the workers or the owners, the net result is the same.... that is to say: paying for that overhead is PART of the economy, not a wealth-sucker.

If the mine is not profitable, then why is it being kept open?.... Is it just to make work for some unemployed people? If so, then those workers are part of the country's overhead... how do we keep them alive and healthy and relatively happy? Do we give them a job? Maybe government is the only one WILLING to give them a job. Or maybe we should farm them out.... a few to each profitable business that exists.... or maybe we should just collect a little money from the profitable businesses, and give these guys an outright grant and send them home to spend it?

Each witch doctor will give a different answer. In the end, the goal is to maximize participation in the economy, but the best way to do that IN A PARTICULAR CASE, is unknown.

[Icebound]

Icebound, you are right in your analogy, not arguing that. The argument remains that you need business (wealth generators) for the government to obtain money to provide services. If you have one farmer and 10 inspectors you have a bunch of government wealth generators but you will not have enough wealth created to support government. If you have 10 farmers and one inspector then life is better for everyone including the taxpayer.

I am saying that it is better to have a potash mine employing people rather than the government employing people through EI. The worker may still get the same take home pay and so spend it in the ecomomy, but the government will soon be out of money. Is this not correct?

Further follow up.....

The analogies above were for simple single industries, but the problem is infinitely more complex with thousands of industries, globally influenced.

I am betting that if you looked at it industry by industry, there are tons of industries that are not paying their own way.... if you included the overhead that they have sloughed of on somebody else.

Tha'ts what lobbyists are for.... to make sure that I pay as little of the overhead as possibly, and have YOU pay it instead. Has the oil industry really been cleaning up all their pollution, air, water, soil and other? Not bloody likely. So hopefully we have taxed them hard enough to cover it. But maybe if we tax them too much, that will kill the industry.... so lets tax their workers... or other industries.... or whatever..... but the costs still have to be covered.

If we really believe that economists understand those intricate inter-relationships.... and.... even if they do..... that they are actually publishing the most truthful facts..... well, I think that is just too much to believe and that is where I tend to agree with the Denniss "witch doctor" characterization.

...

[dre]

But that's not what we're talking about, we're talking about the massively expanded role of government today far, far beyond those things.

Massively expanded role? Do you just make stuff up? You realize that other people can read the things you post on here right?

The government controls the smallest percentage of the economy in recent history...

The government used to manufacture aircraft, manufacture ships, run the rail ways, run the ferries, manage all the forests, build and manage telecom infrastructure, own and operate oil companies, own and operate mining companies, own and operate refineries. Provincial governments used to have total control of liquor sales, much of which they have given as well. Same goes for autoinsurance... mostly private now.

And thats just at the federal and provincial level... At the municipal level most of the road building is contracted out, most of the garbage collection as well, and about a zillion other things as well.

Heres just a few government enterprises that are private now or no longer exist...

Air Canada

Alberta Educational Communications Corporation

Alberta Government Telephones

BCTel

Canadair

Canadian National Railway

Canadian Vickers

City Saskatchewan

CN Marine

CTV Two Alberta

Economic Council of Canada

Eldorado Mining and Refining

Intercolonial Railway

Manitoba Telecom Services

National Transcontinental Railway

Newfoundland Power Inc.

Newfoundland Railway

Northern Alberta Railways

Northern Transportation Company

Nova Scotia Power

Nova Scotia Railway

Orion International

Pacific Western Airlines

Petro-Canada

Polymer Corporation

Prince Edward Island Railway

Province of Ontario Savings Office

Saskatchewan Minerals

Saskatchewan Mining Development Corporation

Saskatchewan Oil & Gas Corporation

SPUDCO

Terra Transport

Trans-Canada Air Lines

Urban Transportation Development Corporation

Victory Aircraft

Yara Belle Plaine

We still have government run healthcare (thank god) but even that is getting chipped away at, with much of the diagnostics and lab worker being privatized (at great loss to the tax payer in terms of both access and cost).

[69cat]

Icebound, i see where you are coming from and you want the government to control everything. I just posted on the exact same thing in thread "why i wont be voting harper - economic record. I will simply say i am not on board with that.

[Icebound]

...... I know what I would do, with a wife and 2 small kids who I care about. I would only buy meat from a reliable company, who tests 100% through a company I know to be reliable. I don't need the government to do that. My guess is that, just like in other industries when comparing government vs private services, they would greatly lower my risk of being poisoned, along with lowering the cost to me for that increased safety, compared to now.

That is part of the point.... you CAN'T know who is a reliable company.

For 50 years I thought Volkswagen was a reliable company. Turns out that they have been KNOWINGLY cheating on pollution produced by their cars, and getting away with it since 2008 http://ca.reuters.com/article/businessNews/idCAKCN0RK0IK20150920

One thing about having government do this kind of work is that government has much greater forced transparency through public audits, Freedom-of-information, etc. etc., than do private companies. If government is bought off with bribes, we are a lot more likely to find out about it, than if your private tester were bought off with bribes.

... and if we want some semblance of "safe" societies, this kind of work has to be done and paid for, and whether you call that taxes, or you call it higher prices, the net result is the same.

[Icebound]

But this is just me humouring you for those things that yes, would be part of the transaction costs anyway. But that's not the issue. The issue is the billions that the government spends on things that are complete waste, that would not otherwise be part of the economy. The classic example is the job which had a role 50 years ago, but is now obsolete, but which is it absolutely impossible to fire the employee from, because it is government.

Yes, we can argue efficiency.... but efficiency is quite another issue.... is is not "government" or "private" which defines the efficiency.... it is the people... managers, workers, ... that are involved. There are sections of government that are VERY efficient, just as.... I submit... that there are sections of private enterprise that are NOT.

Of course, we don't KNOW about private inefficiency, because they don't have to give us any information. Whereas government... at least so far... is much more open to scrutiny through public audits, etc... Also, we have relatively frequent government change which helps to weed out the worst offenders.

Nor do we have good measures on efficiency. Governments may choose to go with some program... buying F-35s, for example.... then scrap it mid way... was that inefficiency, or good management in response to new information?

Private industry writes millions of line of computer code that never sees any useful product. Was that inefficiency, or was it research? And here is an insider's take on some other forms of "inefficiency":

https://books.google.ca/books?id=fA5ZCAAAQBAJ&pg=PT107&lpg=PT107&dq=wasted+computer+code&source=bl&ots=MgLd3cLTix&sig=Kv8bsJGvwZuzr0JX-gj87DI3amY&hl=en&sa=X&ved=0CDwQ6AEwBWoVChMI4_rV3oeGyAIVyI4NCh35Qw9X#v=onepage&q=wasted%20computer%20code&f=false

Furthermore, as our society increases in complexity, it is not that easy to determine "efficiency". Even the computer models that might try to determine it for us, have to come with some assumptions which may or may not be true.

Not to mention that the "economy" is working at cross purposes: One laudable goal of "the economy" would be to have the participation of the greatest number of people for which they receive a good living wage.... But MY goal, in my little tiny world, is to maximize for me, me, me. So MY goal is to get rid of as many people as I can. You can consult any number of witch doctors that you want as to how those two goals are going to get reconciled, and I am betting that you will get as many different answers as there are consultants.

When companies merge... or when companies divest.... etc. there may be "efficiency" for that particular group of shareholders.... but how does that merger/divestiture affect the REST of our broader economic goals? What overhead is being shucked off onto somebody else?

Nobody knows.... The "efficiency" of this transaction...for the broad economy of a country.... will not be known until the effects can be analyzed much much later, and maybe not even then.

And your final statement in the snippet above (about the obsolete job) is false.... i would hope that this is inadvertent and not purposeful deception. .

Government jobs have and do become redundant, and people have been terminated without cause (other than job redundancy). Of course, the terminations came with suitable severance pay, etc. etc. But you can ask any number of Federal employees that were terminated thusly during Martin's budget-balancing exercise of 1994-97 or thereabouts. Sidebar: many at the time would have argued that a lot of the terminations were service-reductions that were NOT obsolete, but that is another arguement. Those terminations did happen, and even now, Harper claims to have cut 35,000 federal jobs or something like that... in the past few years.

Not saying that either case was warranted or not... but lets not spread the falsehood that it can't happen. It can and it does.

...

...

[GostHacked]

Can you explain why federal revenues have consistently gone up as both personal and corporate taxes have gone down?

I think a chunk of the federal revenue comes from fines/fees dished out by law enforcement, municipal by-laws, access fees to public places. But still the government spends more than they make. And everyone knows that this cannot happen forever.

Taxes need to be increased somewhere. As mine go up, the less I can actually spend on the things I need without even consideration for the things I want. When corporate taxes go up, and we are talking really large corps for this scenario, they try to cut costs in order to maintain the profit margin. And that can mean lower wages, cut benefits, lay offs.

Maybe it's not taxes we need to be talking about, but unchecked government spending and corruption.

[Icebound]

Maybe it's not taxes we need to be talking about, but unchecked government spending and corruption.

Sure.

I would just remind you that GOVERNMENT spending and corruption is a lot better "checked" than PRIVATE corruption. Public audits, Freedom-of-information investigations, etc.

At least so far, as long as we maintain an "open" government, (and I will let you decide who of the 3 major parties is LEAST likely to do that)

...

[Keepitsimple]

Maybe it's not taxes we need to be talking about, but unchecked government spending and corruption.

Now you're talking.......you only have to look at Ontario to see how government has expanded, billions upon billions wasted on incompetent management (ehealth), ideological stubbornness (Green Energy, All Day Kindergarten), union kowtowing (Teachers) - and yes, throw in a bit/lot of corruption (Sudbury, Gas Plants). And now - they are on the cusp of selling off Hydro1 - a catastrophe in the making that was not even mandated in the last election.

How about raining property taxes in Toronto to fix some roads and bridges? As a glaring example. Toronto shares a northern boundary with Markham at Steeles avenue. As you approach Steeles from Toronto, the roads are filled with potholes and pothole patches. As soon as you cross Steeles, the roads become smooth.

Cities don't want to raise taxes. Next in line is the Provinces - and they don't want to pay the piper. So they all whine to the Feds. If the various levels would have long term plans to look after their houses - their own responsibilities, we'd all be far better off.

[hitops]

That is part of the point.... you CAN'T know who is a reliable company.

You're splitting hairs. You can never 100% know. Welcome to life. Government doesn't fix this. We still get e.coli and listeria from time to time with gov monitoring.

For 50 years I thought Volkswagen was a reliable company. Turns out that they have been KNOWINGLY cheating on pollution produced by their cars, and getting away with it since 2008 http://ca.reuters.com/article/businessNews/idCAKCN0RK0IK20150920

One thing about having government do this kind of work is that government has much greater forced transparency through public audits, Freedom-of-information, etc. etc., than do private companies. If government is bought off with bribes, we are a lot more likely to find out about it, than if your private tester were bought off with bribes.

... and if we want some semblance of "safe" societies, this kind of work has to be done and paid for, and whether you call that taxes, or you call it higher prices, the net result is the same.

You just made my point. With government playing that role those things still went on. People can bribe government, just like they can bribe private testers. They can fool government, just like they can fool private testers.

But the big difference, is that with private, I get many choices. If a tester is bribed, they will have higher rates of problems and people will avoid them and trust other ones instead. With private, I get 100 choices, with government I get one, and if it sucks, too bad. When private, bad testers, lazy testers who are easily fooled, get filtered out and go away, and good ones stay. With gov, an awful, incompetent department can hang around forever and there is nothing you can do about it. Chinese moms could do nothing when nestle had lead in infant formula and resulted in deaths.

Edited September 20, 2015 by hitops

[Icebound]

Now you're talking.......you only have to look at Ontario to see how government has expanded,

Public service growth has in Ontario has been not much worse than in Conservative Alberta... in fact, as a percentage of population, it has probably been less.

Alberta's public service grew from 261,000 to 400,000 in the 2000-2015 period, while the population grew 3 to 4.12 million. Thats about 54% increase in the same time period as a 37% population increase, a factor 1.5.

Ontario's grew from 1 million in 2000 to 1.3 million in 2015... on a population increase of 11 million to 13.6 million.... Thats a 33% increase of PS on a 24% pop increase... a factor of 1.4

Above based on StatsCan CANSIM Table 282-0089

[Keepitsimple]

Public service growth has in Ontario has been not much worse than in Conservative Alberta... in fact, as a percentage of population, it has probably been less.

Alberta's public service grew from 261,000 to 400,000 in the 2000-2015 period, while the population grew 3 to 4.12 million. Thats about 54% increase in the same time period as a 37% population increase, a factor 1.5.

Ontario's grew from 1 million in 2000 to 1.3 million in 2015... on a population increase of 11 million to 13.6 million.... Thats a 33% increase of PS on a 24% pop increase... a factor of 1.4

Above based on StatsCan CANSIM Table 282-0089

Yet spending went way up over 10 years. I guess that's where the incompetence and corruption came in.

[Not Yet]

Canada already has one of the highest tax rates in the world. The only tax cuts I support are to employers that create jobs in Canada - not abroad.

[ironstone]

One could also ask,do high corporate taxes attract investment?

[69cat]

Lets get back to some basics, this discussion pertains to "corporate taxes" and, as i mentioned a long way back, Canada has only "small" and "large" definitions with regards to Canadian owned companies with "large" defined as retained earnings of $50M or more. I do not insist what i say above is true as i am just a farmer but i at least looked into the definitions to form an understanding (though i do stand to be corrected if wrong). Some places define a large corp as employing 100 or more people but i am talking as per Canadian tax code.

So, we are not talking about meg companies in any way. You all have to keep in mind that there are a lot of companies employing 200 people within a short drive of your area that are directed by federal (and provincial) tax policy. So when you talk of raising taxes as these "big" companies should pay more, you are also impacting that company that you dont even notice tucked away in the background.

And so, how do people start talking about private sector cant be trusted, they are inefficient, dont pay their way? All these negatives? When you talk of negatives first think of your own business (is it simply inconceivable you would own and operate your own business - i sure hope not). So why are you and 10 friends part of some evil empire, would you not run it best you can with tight margins to keep efficient and working? And you grow into a 200 employee "large" corp, at what point during this process did you become corrupt, inefficient, needing the gov to provide oversight because you deemed that it is best for your company to pursue an avenue of corruption.

Corporations are not "things", they are people. And it may be your corporation, so why is it your goal in life to run it corruptly, inefficiently, or not in a way to provide a good work environment for your employees or the area you work in.

[angrypenguin]

Federal revenues haven't gone up. Harper has cut them by 30% as a proportion of GDP.

Federal tax revenue has gone up as declared by Oliver when they announced the surplus. IIRC

[Machjo]

Reducing taxes or any other source of government revenue promotes growth. Increasing Government expenditure promotes growth too. So if the government's sole objective is to promote growth, it's best option would be to eliminate taxes and print more money.

Now if the goal is not necessarily growth but rather sustainability, then lowering taxes and increasing spending at all costs might not be the best option.

[angrypenguin]

I propose flipping this question on its head.

Does hiking the CIT reduce jobs?

Yep.

[Smeelious]

Does it though?

Would a modest increase in taxes actually effect the job creation of a company? Somehow I doubt it.

Made op Anecdote of Randomness:

"Hi Bobby, Sorry to say we can't renew your contract this year because those blasted NDP raised the corporate tax rate"

"Err...Who is going to do work X that I normally do then?"

"Oh Company Y came in with a proposal to do the work, which we didn't bother including you in the bidding process on because NDP."

While I appreciate that companies always restructure in the face of dwindling profits, resulting in the loss of jobs...I don't think I fixed extra (relatively trivial) business cost would have that much of an impact, especially when profits are likely to fluctuate in a much greater amount than the increase of taxes on the business.

I'd argue that it's mostly the same issue with lower tax on gas, the lower tax wouldn't be noticeable because of the fluctuation in the retail cost.

[Gleason]

Not IMO.

[angrypenguin]

Does it though?

Would a modest increase in taxes actually effect the job creation of a company? Somehow I doubt it.

Made op Anecdote of Randomness:

"Hi Bobby, Sorry to say we can't renew your contract this year because those blasted NDP raised the corporate tax rate"

"Err...Who is going to do work X that I normally do then?"

"Oh Company Y came in with a proposal to do the work, which we didn't bother including you in the bidding process on because NDP."

While I appreciate that companies always restructure in the face of dwindling profits, resulting in the loss of jobs...I don't think I fixed extra (relatively trivial) business cost would have that much of an impact, especially when profits are likely to fluctuate in a much greater amount than the increase of taxes on the business.

I'd argue that it's mostly the same issue with lower tax on gas, the lower tax wouldn't be noticeable because of the fluctuation in the retail cost.

Sure, let's examine this. I work for one of the world's most profitable IT companies, so it's publicly traded.

Let's say that 100% of the company's profits were from Canada. Analysts are expecting $.50 per share. Corporate taxes go up, my stock price goes down. Then, I "streamline" jobs and lay off 10,000 people. Stock price goes back up.

I cannot see any situation where a corporate tax increase would not cost jobs.

[Icebound]

I propose flipping this question on its head.

Does hiking the CIT reduce jobs?

Yep.

YES, BUT....

LOWERING the CIT.... DOES NOT .... increase employment. What happens in real life is that it increases corporate profits, which they keep or divvy out to shareholders, but they WILL NOT automatically expand just because they have more money..

Corporations want stability.... they don't really care what the corporate tax is...they adapt. CHANGES in CIT causes them to react as above, but if the CIT stays stable, they will operate within the parameters and will grow with a higher rate, just as well as with a lower rate..... just so long as that rate stays stable.

[blueblood]

YES, BUT....

LOWERING the CIT.... DOES NOT .... increase employment. What happens in real life is that it increases corporate profits, which they keep or divvy out to shareholders, but they WILL NOT automatically expand just because they have more money..

Corporations want stability.... they don't really care what the corporate tax is...they adapt. CHANGES in CIT causes them to react as above, but if the CIT stays stable, they will operate within the parameters and will grow with a higher rate, just as well as with a lower rate..... just so long as that rate stays stable.

No, they will grow faster at a lower rate. Take a look at ireland which was bailed out but keeps its corporate tax rate low...

http://www.theguardian.com/world/2015/sep/10/ireland-economy-surges-with-gdp-growth-forecast-at-6

They are slashing debt to gdp and one of the leaders in growth, yet are keeping taxes low.

http://www.revenue.ie/en/tax/ct/