Democracy Gone Astray

Democracy, being a human construct, needs to be thought of as directionality rather than an object. As such, to understand it requires not so much a description of existing structures and/or other related phenomena but a declaration of intentionality.
This blog aims at creating labeled lists of published infringements of such intentionality, of points in time where democracy strays from its intended directionality. In addition to outright infringements, this blog also collects important contemporary information and/or discussions that impact our socio-political landscape.

All the posts here were published in the electronic media – main-stream as well as fringe, and maintain links to the original texts.

[NOTE: Due to changes I haven't caught on time in the blogging software, all of the 'Original Article' links were nullified between September 11, 2012 and December 11, 2012. My apologies.]

Friday, September 14, 2012

Do corporate tax cuts really pay for themselves?

A new paper by Jack Mintz (with Duanjie Chen) argues that "corporate tax reductions of more than 30 per cent since 2000 have, contrary to the critics' cries, failed to make an appreciable dent in tax revenues thanks to multinationals' habit of shifting profits to Canada to take advantage of lower rates."

This is the subject of a report in ipolitics, contrasting the argument of Mintz and Chen report to last year's "Corporate Tax Freedom Day" report by the Canadian Labour Congress.

Mintz and Chen do show (Figure 3) that corporate tax revenues have remained quite stable as a share of GDP as the statutory rate has fallen from 2000 to 2010. However, the same figure shows that corporate taxable income has been generally increasing as a share of GDP since 2005. In other words, the effective tax rate (tax as a percentage of profits) has been falling. It follows that if the statutory tax rate had been maintained unchanged, corporate tax revenues would have risen as a share of GDP.

The argument that corporations will try to shift their taxable income to low tax jurisdictions is probably true to a degree. But it is important to underline that this is an argument for countries to co-operate to maintain the corporate income tax base, rather than resort to "beggar thy neighbour" policies which increase profits and the wealth of shareholders at the expense of public services and social programs.

It should be noted that governments are under no major illusion that corporate tax cuts are costless in terms of foregone revenues. The outlook for revenues in the 2010 federal budget stated that "growth in corporate tax revenues is projected to moderate to 2.0 per cent in 2012-13 largely due to the decline in the general corporate income tax rate to 15 per cent in 2012 and other tax relief measures as well as a moderation in profit growth." (p. 177) Even Mintz and Chen concede in their report (p.19)  that "the Ontario government will gain some revenue in the short-term by raising its legislated corporate rate."

A final thought to bear in mind. Given deficits at both the federal and provincial level, governments are effectively borrowing money to pay for corporate tax cuts. Meanwhile, Mark Carney and Jim Flaherty both recognize the central argument of the Canadian Labour Congress report -- that corporations are sitting on large hoards of cash and are not ramping up new investment in a major way.

We would be better off to maintain corporate tax rates, and use the needed revenue to bolster real investment in the economy through more targeted measures and through higher levels of public investment.

Original Article
Source: rabble.ca
Author: Andrew Jackson

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