Jay Myers Shills for Corporate Tax Cuts
Jayson Myers from the Canadian Manufacturers & Exporters (CME) is touting a report supposedly showing that corporate tax cuts will create 99,000 jobs. News stories indicate that it is â€œset for releaseâ€ or â€œbeing released Wednesday morning.â€
I could not find the report online, so I phoned the CME. I was initially told that it would be posted around 10am EST. When I phoned again around 11am, I was informed that it would be posted sometime after 2pm. As far as I can tell, the CMEâ€™s strategy is to get media coverage without letting anyone else to scrutinize the report.
In the meantime, it is worth remembering what Myers said about Budget 2008: â€œThis budget worries me because it sends the message that a reduction in corporate tax rates is the silver bullet for the economy.â€ Apparently, he now endorses that message.
Why did Myers suddenly become a passionate defender of corporate tax cuts? Statistics Canadaâ€™s latest edition of Quarterly Financial Statistics for Enterprises, released just before Christmas, provides a possible clue. In the third quarter of 2010, pre-tax profits in manufacturing surged to over $15 billion after languishing below $10 billion per quarter since 2008.
It is no surprise that manufacturers, like other businesses, do not want their profits taxed. However, the CME also lobbies for policies that provide specific support for manufacturing.
For example, I found myself allied with Myers in defending the auto bailout and advocating targeted tax incentives for manufacturing investment. It will be much harder to make the case for public support of manufacturers during downturns if they clamour for tax breaks as soon as they start making money.
PEFLeaks UPDATE (January 12): Readers should note that Tobyâ€™s comment below was at 1:20pm MST (3:20pm EST). The members-only link he mentions did not appear on the CME website until after 2pm EST. Anyway, I have obtained the report and uploaded it here.
UPDATE (January 13): I have posted a critique of the report.
I went to the CME website, which provides a link for this report, but when you click on the link, they say the report is available to CME members only. What are they hiding?
When I’ve been on TV panels with CME reps in recwent years, they’ve generally agreed that investment tax credits are better than corporate tax cuts.
Here are some quick comments I made on the media report (just got the full version):
Canada needs significant new real investment, especially in the manufacturing sector, if we are to create good jobs and raise productivity.
However, across the board cuts to the corporate tax rate are not the most effective way to raise real investment.
Canada already has a very low corporate tax rate following several reductions, but we also have one of the worst performances in the OECD in terms of productivity growth.
Why are across the board cuts to the tax rate relatively ineffective?
Much of the benefit goes to highly profitable resource sector companies, which would be raising investment anyway due to high prices.
A lot of the benefits goes to the financial sector, which raises returns to financial investors but again doesn’t do much for real investment.
Many struggling manufacturing companies do not have significant profits, so don’t benefit from rate cuts.
There should be a different approach – stop cutting the overall corporate tax rate, but significantly increase investment tax credits for investments in new plant, new machinery and equipment, research and development and training.
I am of the mind that that the corporate tax rate should be raised with the following incentive…
Allow for a tax exemption of 20% of of the cost of wages up to 80k per year.
This way a company with 100 employees with annual wages of 80k per would pay no tax on its first 1.6 million of earnings. No averaging of wages. Any amount of an employees wages above 80k could not be applied.
While the numbers and percentages are off the top of my head, and subject to change, the goal remains clear. This would be a way to use use corporate tax policy to align corporate and national goals. The more a company does for its employees (and thus host nation) the more it it is rewarded. A simple lowering of the tax rate does not necessarily benefit Canada.
Wages are already 100% deductible to a corporation.