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The Progressive Economics Forum

Corporate Tax Cuts: Big Costs but no Extra Jobs

Today the CCPA released a study that I authored which examines and debunks one of the biggest contentions of this campaign, that corporate tax cuts create jobs. The payoff of corporate tax cuts has come under increasing scrutiny from various angles, although I focus specifically on job creation.

To examine this contention, I took Canada’s biggest public companies, those on the S&P/TSX Composite and tracked them over the past decade to see how their taxes and profits changed. At the same time, I also tracked how many employees they had and therefore the number of jobs they created. These are the companies that benefit the most from corporate tax cuts because they declare the largest profits.

There were 198 companies that had data from 2000 through 2009. What readers should find shocking is just how dramatic the transformation in corporate taxation has been in the past decade. The effective tax rate that these successful companies have paid has been cut in half. Imagine if as an individual your personal income taxes had been cut in half over the past decade, well that’s what happened in corporate Canada.

With such a dramatic change, it should be no surprise that compared to 2000, profits are up 50% while taxes paid are down 20%. The tab for corporate tax cuts for just these 200 companies is $12 billion a year in lost provincial and federal revenues. To give readers a sense of scale, that much money could buy us a national $10/day childcare program and wipe out poverty among seniors with money left over.

The bargain that Canada made with its most profitable corporations was that if we give them dramatic tax cuts they’ll use that money to create jobs. We’ve cut the cheque, worth $12 billion a year in 2009, so did we get the jobs?

The Canadian economy as a whole has increased the number of jobs by 6% since 2005. However, the 200 companies that are receiving the $12 billion a year tax break have only increased their job numbers by 5%, in effect they are pulling down the average.

Instead of creating jobs with those billions, they have merely increased their profits or are sitting on the cash. Canadians should expect vastly more for $12 billion a year.

Enjoy and share:

Comments

Comment from Andrew Jackson
Time: April 6, 2011, 11:59 am

Great post David.

Just so we don’t buy into the other myth that small business are the job creators, it would be useful for someone to pull together the data on the changing mix of private sector employment.

Comment from Paul Tulloch
Time: April 6, 2011, 2:16 pm

Too late somebody on the blog already fell down that rabbit hole and swallowed the blue pill.

However I do believe tax reduction for smaller business may actually have a bit more efficiency in terms of job creation contra tax levels versus larger corps. Of course these tax cuts do not in the main effect smaller business. This is of course assuming a healthy economy where small business owner success is causally dependent on large business health, so that the job creation multipliers between the two expand.

Now in terms of data, hmmm.

Comment from Ryan Joseph
Time: April 14, 2011, 10:14 pm

Great analysis done David! on the impact of corporate tax cut on creation of jobs. Canadian government has taken a decision of assisting big corporates tax break for creation of employment in the country. In contrast of the decision, the analysis shows that despite of receiving tax break of the $ 12 billion a year, the 200 big corporates have opened opportunity for just 5% increase in job numbers.

Further the tax cut makes huge loss of revenue for the government. Hence rather facilitating tax cut to big firms, it should support small and medium enterprises to become more competitive and hire more workers. There is also more scope to learn work in small business for those who have just completed study. Hence it may be better to offer tax break to small and medium business rather than big firms.

Comment from Ken
Time: April 15, 2015, 12:07 pm

Thanks for the insight. One would think tax cuts stimulates job creation.

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