Friday, April 15, 2011

Speaking of Heritage...

Canada, of course, has its own set of mendacious right wing think tanks ready on call to provide a veneer of quasi-academic sophistry in support of whatever Canada's owners are trying to jam through.  Currently, the cause is corporate tax cuts.  It's a real mark of how much they want this that the Conservatives are willing to take the hit of supporting such an unpopular measure even in the midst of an election where they could get their coveted majority mandate (they're within a couple seats says our version of Nate Silver).   From the CBC background piece on the "debate", it opens unfortunately with some "views differ on the shape of the earth" undeserved even-handedness:
But, as is true with many questions one thinks have already been answered, sane economists also divide markedly about the effectiveness of cutting corporate levies.  [...]
Some like the notion of chopping what firms pay.
"The recent and planned general corporate rate reductions are good for the economy with a minimal impact on government revenues," Jack Mintz, Palmer Chair of Public Policy, School of Public Policy at the University of Calgary, wrote in a recent opinion piece in the National Post.
Others not so much.
"Corporate tax cuts may not reduce the costs of doing business but may, instead, contribute to rising business costs, falling profits, slower growth and job declines," said Robert Lynch, chairman of the economics department of Maryland-based Washington College and an expert of U.S. corporate taxes.
The article isn't all bad, but it does give far too much credence to Mintz and his sort of reality debunked claptrap.  It's worth going through this because of how familiar it should be to US readers, but also because Canadian corporate tax law makes these arguments uniquely absurd:
"To increase after-tax cash flow — leave more money in the hands of business to invest," noted Jeff Brownlee, vice-president of public affairs and partnerships for the Canadian Manufacturers and Exporters, an Ottawa-based business group.
This is just outrageously false.  See, in Canada, like the US, corporate taxes are formally levied on "revenue" however Canada exempts pretty much all operating and capital investment costs so effectively our corporate taxation is really a tax on profits rather than revenue. 

So if a corporation wants to invest money in new equipment, new hires, new products and so on, that money is deducted from the taxable portion of revenues.  Lowering taxes on the taxable chunk has no impact on capital investment.   The calculations corporations in Canada make when deciding whether or not the Return on Investment or similar metric justify investment in increased capacity is not affected by taxes at all.  Pretty much the only thing impacted by corporate taxes are dividends. 

Dividends of course get paid to shareholders who are either a) not Canadian and thus pay no Canadian taxes on these or b) Canadian, in which case only 50% of capital gains are subject to income tax.  Can you begin to imagine why wealthy right wing interests might want corporate taxes cut?  

Here's another howler:
Brownlee also points to comparative factors, such as the need for Canada's tax rates to mirror those in other countries. In that way, Ottawa can make sure domestic companies are not lured away to lower tax jurisdictions.
See, if we'll end up poor if we don't win the race to the bottom so let's dig faster.  Of course, our nominal and effective corporate tax rates are already quite low compared to our G7 peers, and in particular are lower than the US.  In fact, the article does note this in a handy table further down, which completely exposes hacks like Brownlee as the Heritage-class propagandists they are.
"Business taxes are borne directly or indirectly by people — workers through lower wages, consumers in the form of higher prices for goods and services, and shareholders through lower returns," said the Canadian Chamber of Commerce in a February paper.
Indeed, many fans of eliminating corporate taxes argue that employees could be the biggest victims of the type of levy.
"The burden of corporate income tax can fall on labour. When faced with higher production costs due to the corporate income tax, firms can pass the burden along by decreasing their wage payment," wrote Li Lui and Rosanne Altshuler, economics professors at Rutgers University in New Jersey, in a 2009 academic paper.
Now I'm going to give Li Lui and Rosanne Altshuler a pass here, not having read their paper I'm assuming it is either focused on the US (which does not, as far as I can see, exempt wage costs from corporate taxation) or from a generic point of view.  However the Canadian Chamber of Commerce knows damn well like I do that Canadian companies do not pay tax on money spent on employee wages.  The bit about shareholders is true enough, but no Canadian corporation is going to give out raises if their taxes on profits decrease which is what we're talking about.

One final gripe about this piece (which is atypically bad for the CBC in my experience):
Essentially, the gripes of the contrarians are more practical than theoretical in nature, namely that past corporate income tax cuts never generated much extra investment nor did they result in any new burst in hiring.
Oh, see, the "contrarians" with their "gripes" about the mere fact that corporate tax cuts have never actually resulted in the magic ponies that various right wing think tanks have promised when implemented in the past.  Just that silly empirical record stuff.  This is 20+ paragraphs in before we hear it mentioned that corporate tax cuts don't, you know, work

So if Paul Krugman manages to figure out how to have Heritage and its ilk drummed out of the public square, I hope the recipe can somehow be applied up here.   I'm not a specialist in the field, and it wasn't terribly difficult to expose these arguments as being utterly hollow, and yet I had to go look this stuff up, because it isn't mentioned even in an ostensible recap of the major arguments for and against the idea.  It shouldn't be given credence, but it somehow is.  Given how the election is going, they'll likely get their way too, and in a few years maybe Harper can move on to his bold voucher program for Canadian health care too.

Anyway, if you're wondering why Canada hasn't been able to turf its Mayberry Machievellis, this sort of thing is a good part of why.  

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