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The Progressive Economics Forum

Ignatieff on Corporate Taxes

Last night, I went to sleep early before watching any coverage of the Liberal Policy Conference. This morning, a well-rested Erin Weir marched into the office with such purpose that I did not even look below the fold on The Globe and Mail’s front page. Imagine my pleasant surprise when I got an e-mail about Michael Ignatieff proposing to cancel future corporate tax cuts.

The Conservative government is slashing the federal corporate tax rate from 22.12% to 15%, which would reduce annual revenues by $13.7 billion if fully implemented. More than half of that cut, from 22.12% to 18%, has already been implemented. However, as I estimated a month ago, one could save $5.8 billion annually just by maintaining 18%.

Before getting too excited, it is worth noting that the Liberals’ written proposal takes credit for introducing almost all of the corporate tax cuts enacted to date. Here is the specific promise: “Freezing corporate income tax rates to their current level until Canada can afford to lower them further.” While the Liberals cite dollar amounts (“between $5 – 6 billion annually”) that assume 18%, they do not actually commit to 18%.

The “current level” will be 18% only if there is a federal election this year, but it falls to 16.5% next year. If there is no election until 2012, the corporate tax cuts will have been fully implemented and Ignatieff’s promise would be moot (as Chantal Hébert notes). The “until Canada can afford to lower them further” provision also gives the Liberals extensive wiggle room, especially if the federal deficit comes in smaller than projected.

More generally, the Liberals are not to be trusted on this file. For a decade from 2000 until yesterday, the federal Liberals loved corporate tax cuts. Dalton McGuinty has demonstrated at the provincial level that a Liberal politician can quickly manoeuver from cancelling corporate tax cuts to reinstituting them, even in the face of a huge budget deficit.

Still, Bay Street was not amused. Indeed, Ignatieff’s unexpected announcement was a seismic shift in the political debate about corporate tax cuts. 

Until yesterday, only the NDP opposed them. As recently as the last federal election, the Liberals prided themselves on promising even deeper corporate tax cuts than the Conservatives. The only disagreement between the two dominant political parties was how far to cut corporate taxes. Today, the debate is whether or when to cut corporate taxes.

For those of us who have long been fighting the lonely war against corporate tax cuts, Ignatieff’s announcement is an important advance. The challenge now is not only to hold this advance by defending the limited measure that Ignatieff has tentatively embraced, but to exploit it by making the case for returning to at least the more sensible federal corporate tax rate of 22.12% that Canada had before the economic crisis.

UPDATE (March 30): Cited by Canadian Press

Enjoy and share:

Comments

Comment from Travis Fast
Time: March 29, 2010, 5:53 pm

And interesting that the Globe ran with CEOs agree on tax increases. Suddenly that which was irresponsible and economically illiterate gets re-branded as responsible and in line with mainstream thinking. Good thing these are decided on their merits and not by authority:)’

Comment from Paul Tulloch
Time: March 29, 2010, 7:44 pm

vote wise what better issue to run on than raising rates on corporations, its no wonder the tories were so pissed today at Iggy and friends. This is something to build a platform on, a good campaign issue for sure, HArper in bed with the big companies, Iggy in there for the little people. Although, it is farce, it works, lets see how far the tories go with tax cuts to business, it is going to cost them votes- there is no doubt.

So lets see:

1) proroguing parliament when needing to hide
2) tax give away to corporations
3) Afghan detainee related incompetence and who knows what else with these torture victoms
4) has done nothing on the environmental front in Canada and derailed it internationally
5) has been picking on women’s groups and muzzling democratic institutions.
6) sat idly by as the manufacturing sector was decimated in Canada and now the jobless rate is above 8% and the job quality has plummeted
7) ran up a deficit that it is hard to say on what because they won’t release spending details.

8) have become the most undemocratic bunch of dictators that Canada has seen in decades of leadership.
9) mismanaged the dollar in ways that are mind boggling.
10) deteriorated our international relationship through so many activities that I will not list them here

and I could go on- but still they lead in the polls!

I think this CIT freeze could be the one if packaged correctly to make a dent in a well coordinated tirade on the Tories. Then on to the election in the fall.

Comment from Travis Fast
Time: March 29, 2010, 8:45 pm

Paul,

Devious yes, dictators no. In my opinion terms like dictator, fascist, Nazi, and Stalinist should not be thrown around so lightly.

On CITs you would we be surprised how many well educated people think corporations do not exist for tax purposes. Even more so with certain elements of the median vote. So I am not sure it is such a slam dunk with the centre right voters Iggy needs to court. If he is playing to his disaffected left this might work. But as Erin says there is a lot of wiggle room in the statement. So the NDP can probably mitigate that play to some degree. Also remember the liberals have a history of talking left and governing right. I will be surprised if this develops into THE election battle.

Comment from Paul Tulloch
Time: March 29, 2010, 9:32 pm

I’ll tell you what Travis, the day when a leader starts shutting down humna rights office, refilling the human rights commissions with right leaning wonks, stifling human rights groups, such as women’s groups, ignoring labour and and environemental groups to me, I am not throwing that term around carelessly. In fact I am very passionate when I say this guy is a stone’s throw away from dictating.

Believe what you like but I am not a fan of this style of leadership. It is not acceptable.

Comment from Paul Tulloch
Time: March 29, 2010, 9:34 pm

did I mention hiding Afghan torture documents.

Comment from Toe
Time: March 30, 2010, 12:56 am

So what? What are you going to do about it? What should all of us do about it? Why is the magical elirixor of not pushing Canadians into the right and necessary style of leadership leave us with No Will At All? Why is the answer to that,so milk toast?

Comment from travis fast
Time: March 30, 2010, 6:39 am

Yes Paul, and all within the limits of parliamentary democracy and procedure. Sure there is some good degree of dishonesty on the torture file but it took an inquiry an how many years to out the sponsorship fraud?

Terms like dictator have a rather precise meaning in political science. When you call Harper a dictator it sounds like tea-baggers calling Obama Stalinist. I do not disagree with you about the overall, shall we say, lack of reverence the Conservatives have shown both to our democratic processes and institutions but it hardly amounts to dictatorship. That does not make it OK, it just does not make it a dictatorship.

When you hear a coup has been launched; and the military is involved out on streets rounding up trade unionists and every other possible imaginable internal threat; and that the CBC has been shut down; and that parliament is closed; and that the coup leader has indefinitely suspended elections then you can call it a dictatorship.

As Toe points out, the opposition could bring down Conservatives anytime they liked. That the opposition will not because they refuse to govern together and will not risk that THE PEOPLE will not give one of them a majority mandate at this time is hardly evidence of dictatorship: a sick democracy maybe but not a dictatorship.

So it is we who either need to push for a coalition government or get busy helping our preferred opposition party get elected with a chance of a majority.

And that sounds to me like our parliamentary democracy same as it ever was.

Comment from travis fast
Time: March 30, 2010, 6:44 am

Ok,

I threw up a blog post over at my house for anyone who wants to continue the conversation about dictatorships as we are rather far from the original post -Iggy and kinda of sort of maybe CIT cuts. Just click on my name and it will take you there.

Comment from Stephen Gordon
Time: March 30, 2010, 4:36 pm

For those of us who have long been fighting the lonely war against corporate tax cuts

Could you explain *why* you are fighting this fight?

Comment from charlie
Time: March 30, 2010, 7:10 pm

Could someone explain why we shouldn’t ?

Comment from Erin Weir
Time: March 30, 2010, 7:14 pm

As explained in many other posts, Canada’s corporate tax rates were already relatively low. Cutting them will needlessly transfer revenue from our government to the US treasury.

There is no evidence that slashing corporate tax rates has increased investment. In any case, investment can be promoted more cost-effectively with targeted tax measures.

Perhaps the most obvious reason to fight against corporate tax cuts is that they are expensive. That consideration appears to have swayed Mr. Ignatieff.

For better or worse, corporate income tax is the only major tax that any major Canadian political parties are prepared to consider increasing. In the current Canadian context, it is a non sequitur to claim to support increased public revenues while endorsing corporate tax cuts.

Stephen, I appreciate your belief that raising the GST is the optimal solution. However, given that proposal’s improbability, perhaps you should consider raising corporate taxes as a “second best” option. At a minimum, if you want more public spending, you might stop advocating corporate tax cuts.

Comment from Stephen Gordon
Time: March 30, 2010, 8:07 pm

So what were the arguments in the 2004 and 2006 platforms?

Comment from Paul Tulloch
Time: March 30, 2010, 8:07 pm

okay how about this as well, Corporation make profit. In Canada’s small open economy, a good portion of these taxes leave the country to go back to the home country.

Corporations need roads, power, a work force that requires training and regenerating daily, transportation, security, legal protection, etc. Why should we as citizens and tax payers be required to pay for the costs of these enablers of profit? If anything, at this stage of modernity within industrialized countries as Canada, the high productivity/ high quality outputs from our capital intensive production process, require even more advanced and more costly infrastructure. IT, higher trained workforce, more advanced communication networks, higher R&D service requirements etc. The way the business model has evolved, its not enough that many times government has got to come in with inducement money for green field sites, but also subsidies to maintain brown field sites are often doled out to prevent capital flight.
So these I would think make a case for higher CIT rates rather than lower. I just do not see the case for lower taxes other than there is a competitive process for a scarcity of capital and investment because of many reasons, i.e. lower rates of return for higher risk especially when one has a well oiled financial casino captilism that has subsumed the traditional productive.

I also do not believe consumption taxes are a solution as they are plain old regressive. Income taxes and CIT are the way to go for raising government revenues. Or how about an investment tax, seeing they are th ones that steam rolled the global economy into this recession and had to bailed and then economy kickstarted all at the tax payers expense.

pt

Comment from rcp
Time: March 31, 2010, 1:28 am

Is there some possibility that lower corporate tax rates might lead to increased investment from the EU? It seems clear that hiring new workers in Canada is less fraught with peril than hiring new workers in France, say.

Comment from Jim Stanford
Time: March 31, 2010, 7:07 am

I’m all for working in France. They go on strike every other week, their collective bargaining rights are enshrined in law, they have great cheese and cheap wine (the latter offsets the cholesterol in the former), they work 35 hours a week, and they have a lot of sex (or so they claim).

PS: Erin, many congrats on setting the Liberal program.

Comment from rcp
Time: March 31, 2010, 8:30 am

Not to diss France, but they also have banlieues that are virtual no-go zones and stubbornly high unemployment, both at least in part because of labour market rigidities. It therefore might make sense for French (and other EU) companies to set up shop in Canada.

Comment from Travis Fast
Time: March 31, 2010, 9:48 am

SG will be happy we are in for a raft of regressive tax (mostly in the guise of user fees) measures in Quebec with some vague information on redistribution to the impoverished. How can it be more efficient to collect a myriad of user fees rather than just raising marginal tax rates?

Comment from Erin Weir
Time: March 31, 2010, 5:55 pm

According to yesterday’s KPMG study (see Exhibit 5.10 on page 60 of Volume I), Canada’s effective (federal plus provincial) corporate tax rate is 15% for manufacturing and 22% for services. By comparison, France charges 24% for manufacturing and 33% for services.

All of the other countries examined are higher than Canada and many are higher than France. Whatever one thinks of the French economy, we clearly do not need corporate tax cuts to be competitive.

Comment from Erin Weir
Time: April 1, 2010, 10:15 pm

SG will be happy

Right on cue!

Comment from Travis
Time: April 2, 2010, 5:49 pm

Science demands nothing less.

Comment from Stephen Gordon
Time: April 3, 2010, 6:06 pm

What can I say? The Quebec budget includes measures to increase incomes of low-income households. Why would self-described progressives dismiss that?

It puzzles me that such concrete measures to reduce poverty are roundly criticised by the Canadian Left, while pointless symbols are applauded.

Just what is the goal of the PEF? Because I’m having a hard time believing that you’re interested in reducing poverty and/or inequality.

Comment from Travis
Time: April 4, 2010, 6:08 am

Only you could tout a budget that makes a family four earning 25,000$ a year a hundred dollars plus worse-off as a poverty alleviating budget (and that is even if one does not include the proposed fee per visit health proposal).

You really are taking the conservative mantra of less is more to whole new level.

Comment from Erin Weir
Time: April 4, 2010, 9:09 am

Please continue debating the Quebec budget over here.

Comment from Travis
Time: April 4, 2010, 9:25 am

Wow this is embarrassing. Neither in the main budget or the special blurb on health care makes mention that the health premium does not kick in until 40,000$ for a family of four with two working adults. According to the budget document a 28,000$ model family of four will see an improvement in total transfers of 200$. And a single person earning 20,000 a year will loose 103$ a year. But what they did not include in the estimates was the effects of the already scheduled hydro increases nor the additional levies on top of those already announced. On my blog I erred here too because the additional levy increase scheduled for 2012 is on top of those levies that is the rate at 2012 is the base. So by 2012 this more likely to be a wash. Note, I include hydro here and on my blog because the government has repeatedly referenced the measures in the new solidarity Tax Credit making up for those increases. So the notion that the budget, is a step towards poverty alleviation is just bogus. Also there is not a model of a a two parent family with a single breadwinner. It is not at all clear how much or if any that the spouses STC of 510 will transfer to the working spouse (I suspect it would).

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