Corporate Tax cuts do not create jobs

One of the most enduring myths of modern capitalism is that corporations invest the savings from tax cuts back into their operations, thus creating jobs, expanding the economy, and generating even bigger revenues for governments.

From this perspective, governments should keep slashing corporate taxes, presumably right down to zero. If the tax cuts of recent years continue, that state of nirvana will be reached in twenty years.

An exaggeration? Hardly. In 2000, the combined federal-provincial tax rate was just over 42%. A decade later, this figure has fallen to 28%, and Stephen Harper would cut it to to 25% by fiscal 2013. Do the math yourself.

Of course, zero taxes on corporate profits would ultimately raise (cue sounds of calculators beeping)…. ZERO dollars in government revenues. That leaves Jo Average, the working class taxpayer, footing the entire bill, on top of generating the profits created for the bosses through the exploitation of her labour. There’s obviously something wrong with this picture, unless you happen to be one of our corporate masters.

But you don’t have to be a Marxist to poke holes in the corporate tax cut swindle. Even the Globe and Mail recently reported that “Canadian companies have added tens of billions of dollars to their stockpiles of cash at a time when tax cuts are supposed to be encouraging them to plow more money into their businesses.”

Analyzing Statistics Canada figures, the Globe and Mail found that “the rate of investment in machinery and equipment has declined in lockstep with falling corporate tax rates over the past decade. At the same time, businesses have added $83 billion to their cash reserves since the onset of the recession in 2008.”

During some periods of history, capitalists do invest in expansion of their business operations. As the Globe and Mail argues, “from 1960 until the early 1990s, corporations invested almost every penny of their after‑tax cash flow back into the business.”

This argument omits reference to the resulting growth of the “reserve army of the unemployed.” In their competition for higher profits, capitalists drive up the rate of exploitation of their workforce. Their main tactic is increase the proportion of corporate spending on machinery and equipment, to reduce labour costs. Not surprisingly, the average level of unemployment among Canadian workers rose dramatically during these “golden years.”

Now, the Globe and Mail reports, “investment in equipment and machinery has fallen to 5.5% in 2010 as a share of Canada’s total economic output from 6.8% in 2005 and 7.7% in 2000.”

In other words, tax breaks and handouts to big corporations have failed to live up to the predictions of neoliberal economists and right-wing politicians. The gap between the rich and the working class is at record levels, over 1.5 million Canadians remain unemployed (according to understated official figures), funding for social programs, health and education is under constant attack, and corporate CEOs and shareholders are laughing all the way to the bank.

Need more proof? Another study, released on April 6 by the Canadian Centre for Policy Alternatives, shows that “after a decade of corporate tax cuts, the benefits to Canada’s largest corporations are clear but the job creation payoff for Canadians hasn’t materialized.”

The study tracked 198 companies on the S&P/TSX composite index from 2000 through 2009. Those 198 companies are making 50% more profit and paying 20% less tax than they did a decade ago. But in terms of job creation, “they did not keep up with the average growth of employment in the economy as a whole. From 2005 to 2010, the number of employed Canadians rose 6% while the number of jobs created by the companies in the study grew by only 5%.” (Note: the total population rose 5.5% during those years, so employment gains were minimal, and largely part-time.)

If those 198 companies paid the same tax rate as they had in 2000, federal and provincial governments would have collected an additional $12 billion in revenue in 2009.

The CCPA’s conclusion: “Canadian governments are losing $12 billion a year to 198 of Canada’s biggest companies, who are making 50% more profit and paying 20% less in income tax while creating fewer jobs than the average.”

Our conclusion: the well-being of working people is too important to leave in the hands of profit-hungry corporations. Restoring the federal corporate tax rate 30% – about the levels of a decade ago – would be a good first step to provide governments with the revenue needed to tackle urgent social problems in Canada.