Corporate Taxes: You Read it Here First
We already have several posts about todayâ€™s front-page Globe and Mail story, but that wonâ€™t stop me from piling on.
Andrew and Marc have noted that todayâ€™s story makes points familiar to this blogâ€™s readers. Indeed, posts questioning the alleged relationship between corporate tax cuts and business investment are almost too numerous to list.
Jim, Armine, and I have all made the specific point that higher after-tax profits are padding corporate Canadaâ€™s â€œstockpiles of cashâ€ rather than funding investment. The latest Statistics Canada figures indicate that private non-financial corporations have stockpiled $456 billion of straight cash (Canadian dollars plus foreign currency). That total does not include cash stockpiled by banks and Crown corporations or near-cash items like short-time paper.
In a nutshell, Stephen claims that business investment rose in â€œrealâ€ terms because the relative price of capital goods fell. I do not dispute that cheaper capital goods allowed corporate Canada to buy more capital goods. (In particular, cheaper computer technology allowed it to buy more computer technology.)
However, that in no way suggests that corporate tax cuts caused business to buy more capital. Lower taxes gave business more nominal dollars of after-tax profit, which have manifestly not been reinvested.
Despite Stephenâ€™s best efforts, I think that todayâ€™s incoherence award goes to Dwight Duncan:
But in an interview on Tuesday, [Ontario] Finance Minister Dwight Duncan said he supports Mr. Ignatieffâ€™s policy even though he himself is under siege by opposition members for presiding over corporate tax cuts.
â€œThe feds could have actually taken their foot off the gas pedal in terms of corporate tax cuts because of what weâ€™ve done,â€ Mr. Duncan said.
So, the purpose of provincial corporate tax cuts is to reduce the need for federal corporate tax cuts? Really?
If Ottawa proceeds with corporate tax cuts, will Duncan take his foot off the gas pedal?
The following graph that Toby and I prepared for Ontario looks pretty similar to The Globeâ€™s graphs for the whole country.