Main menu:

History of RPE Thought

Posts by Tag

RSS New from the CCPA

  • CCPA SK Annual General Meeting October 11, 2019
    Please join us for our Annual General Meeting in Saskatoon, 5:00pm, Thursday, October 24th at Station 20 West. (1120 20th St. West) Courtney Carlberg, author of Saskatchewan's Failing Report Card on Child Care, will discuss why Saskatchewan ranks the lowest for overall quality and rates of access to regulated child care in the country and […]
    Canadian Centre for Policy Alternatives
  • Corporate Mapping Project receives award for research excellence October 9, 2019
    The co-directors of the Corporate Mapping Project—CCPA-BC Director Shannon Daub and the University of Victoria’s William Carroll—are being celebrated in Victoria today as they accept a REACH Award for Excellence in Research. The REACH Awards recognize “research excellence” as demonstrated through scholarly contributions and societal impact. Since the inception of the Corporate Mapping Project, Shannon […]
    Canadian Centre for Policy Alternatives
  • Unpacking the details of Manitoba Hydro September 9, 2019
    What would a long view of Manitoba Hydro all entail.  Read report here.
    Canadian Centre for Policy Alternatives
  • CCPA submission to Treasury Board consultation on regulatory modernization September 6, 2019
    On June 29, 2019, the federal government launched a public consultation on initiatives intended to "modernize" the Canadian regulatory system. Interested Canadians were invited to provide input on four current initiatives: Targeted Regulatory Reviews (Round 2) Review of the Red Tape Reduction Act Exploring options to legislate changes to regulator mandates Suggestions for the next […]
    Canadian Centre for Policy Alternatives
  • Join us in November for the 2019 CCPA-BC Gala, featuring Nancy MacLean September 3, 2019
    Tickets are available for our 2019 Annual Gala Fundraiser, which will take place in Vancouver on November 21. This year’s featured speaker will be Nancy MacLean, an award-winning historian and author whose talk, The rise of the radical right: How libertarian intellectuals, billionaires and white supremacists shaped today’s politics, is very timely both in the US and here in […]
    Canadian Centre for Policy Alternatives
Progressive Bloggers

Meta

Recent Blog Posts

Posts by Author

Recent Blog Comments

The Progressive Economics Forum

Corporate Tax Cuts and Investment

It is notable that the Globe has run a major story today – on p.1, above the fold in the print edition – drawing attention to the fact that recent  corporate tax rate cuts have not produced an increase in real business investment. Reference is made to the views of labour economists.

The Globe story will not be “news” to regular readers of this blog,  but it sure helps get the message out!

It is interesting to note that corporate profits have rebounded very strongly in the recent recovery. Following the recession of the early 1990s, it took until 1994 for corporate pre tax profits to regain the nominal level fo 1989.

Corporate pre tax profits in the fourth quarter of 2010 were 11.2% of GDP, still shy of the high of 13.6% in 2008, but well above the recession low of 8.9% in the second quarter of 2009.

Total corporate pre tax profits rose by $50.6 Billion or by 38% from the bottom of the recession in the second quarter of 2009 to the fourth quarter of 2010. That is almost as much as the $53.1 Billion increase in total labour income over the same period.

Meanwhile, non residential business investment has risen by only 8.8% (measured in real terms) since the bottom of the recession.

Tax breaks targeted to companies which invest and create jobs will put profits to work more effectively than more across the board cuts to the corporate tax rate.

Enjoy and share:

Comments

Comment from Chris
Time: April 6, 2011, 7:16 am

I feel the government should parallel corporate tax cuts with other incentives for real business investment, and should also focus on relaxed tax programs for small businesses, which are the real driver of job creation in North America over the past 20 years.

Cheers!

Comment from Paul Tulloch
Time: April 6, 2011, 8:13 am

potentially I may have to retract my comment yesterday- maybe the ghost of Travers heard us at the PEF and paid a visit to the printing machine at the Globe as I am a bit surprised to see such a decent story.

Hail Jim T. we miss you – and a pint for Karen Howlett and the editor at the GM for this article- cheers.

Comment from Paul Tulloch
Time: April 6, 2011, 8:15 am

David M. also put out a nice CCPA release today on the same subject, a pint for David as well. I am sure he will post it up here soon.

Comment from Paul Tulloch
Time: April 6, 2011, 8:42 am

Toby S should also get a pint for this one as well, as his analytical work was instrumental.

I am very jealous Toby, I am gonna top you on this, back to my economics lab I have some promising blue prints to re-examine. I wish I had that damn employment quality index. When this election is over- that is it! I am going to build that damn thing once and for all and I am going to make it an automated web application that once statcan releases monthly data the thing will update itself and become a live economic smart machine using web 5.0 tech- eternally crunching employment data and automated analysis live and on the web (kind of sounds like me).

Comment from Eric Pineault
Time: April 6, 2011, 8:56 am

Has any read the response in the Globe’s economy lab by Stephen Gordon ?

Comment from Travis Fast
Time: April 6, 2011, 9:23 am

“Has any read the response in the Globe’s economy lab by…”

Wow an anecdote about hedonistic deflators backed-up by a summary of counter-factual analyses resting on neoclassical assumptions.

I will stick with the facts. Nominal Investment as a share of nominal GDP is down and productivity growth has been dismal. And the best lipstick that can be put on this pig is it would be uglier without the CIT cuts.

Comment from Toby Sanger
Time: April 6, 2011, 9:46 am

Here’s my comment on the story and response to Gordon’s piece.

Corporate tax cut boosters Jack Mintz and Stephen Gordon will predictably attack this in different ways by citing various academic studies and also saying that people should look at inflation adjusted dollars instead of current dollars.
http://www.theglobeandmail.com/report-on-business/economy/economy-lab/stephen-gordon/corporate-tax-cuts-a-look-under-the-hood/article1972965/

The reality is that the economy operates in nominal dollars, not inflation adjusted dollars. Corporate profits are in nominal dollars, as are taxes, as is investment Besides, there are many problems with the way the real value of that investment is calculated by Statscan.

The fact is that corporations have more than doubled their cash reserve over the past decade to over $500 billion, money that isn’t going into investments in the economy. Lower costs for machinery and equipment should mean that corporate tax cuts are not needed to spur investment with most of it is just going into excess cash.

It’s absolutely true there are many other factors that affect investment: corporate taxes are only a small part of total costs. The studies Gordon refers to use data before the financial crash, when Ireland and Iceland were leading the race to the bottom on corporate tax cuts. Look at where they are now.

Comment from Brian Dell
Time: April 6, 2011, 10:21 am

The main G&M story says “Investment in equipment and machinery has fallen to 5.5 per cent in 2010 as a share of Canada’s total economic output from 6.8 per cent in 2005 and 7.7 per cent in 2000, The Globe analysis shows.”

Yet the infographic on Stephen Gordon’s post is totally incompatible with this contention.

In any case, you guys should be happy, what Stephen Gordon writes is never going to get the readership that something by a regular G&M journalist gets and this journalist not only characterizes the international consensus of economists as “sharply divided” (if there is no consensus why is the trend downwards? Have consumption taxes trended upwards absent a consensus?) but writes:
“The issue boils down to this: At a time when Ottawa and many provinces are awash in deficit, should governments invest scarce resources in making life more affordable for families by enhancing social programs or in giving corporations additional tax cuts?”

You can hardly ask for more favourable framing than that.

Comment from Eric Pineault
Time: April 6, 2011, 10:24 am

Actually the supposed “rise” in real investment shows as small bump when one looks at the data over a twenty year cycle, and it really becomes insignificant when compared to the explosion in liquid assets. I should be posting on this soon, with some new data.

Write a comment





Related articles