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Why “People for Corporate Tax Cuts?”

By Randy Robinson
 

There has never been an OPSEU campaign like this one.

“People for Corporate Tax Cuts” is funny. It’s provocative. And it’s online. Its aim is to cut through the noise of modern life with a simple message: Ontario can’t afford corporate tax cuts.

OPSEU members are used to fighting for public services. We’re used to fighting for good jobs. We’re less used to commenting on wider issues. So why are we talking about corporate tax cuts? And why now?

The answer is simple. If we don’t, there is no way we can stop the steady erosion of the public services Ontarians depend on. There is no way we can protect our jobs and working conditions. There is no way we can build a fairer, more inclusive Ontario.

Public services and jobs are strongly linked to two things: the fiscal policies of government (how it gets money and how it spends it), and the health of the economy.

Obviously, the two are related. But not in the way some people say.

Read the business section of any newspaper and you get one particular view of the economy. Business, the papers say, will invest more and create more jobs when government stays out of the way. This means signing free trade deals, cutting regulations, selling off public services, and keeping taxes low. This grows the economy, business says. When that happens, government can collect the taxes needed for health care, education, highways, and so on.

That’s the theory. The reality is very different.

None of the world’s big economies became big by following these policies. In every case, government laid the groundwork for business success through protective tariffs, spending on infrastructure, and other help.[1] Indeed, Canada grew that way for a hundred years.[2]

What we call the “free market” has always depended on public support. Picture a country with no public roads, no public water systems, no electricity developed through public subsidies, no public education, and no courts to settle disputes.

Now picture that country’s economy. It’s a poor one.

So when people say that the money for children’s aid or provincial jails comes from the private sector, the truth is not so simple. In a modern economy, the public and private sectors are integrated. They depend on each other.

Most of the money for public services and jobs comes from taxes (including taxes on public employees). How those taxes are collected, and from whom, is a central concern for every government.

Taxes on corporations are always a sensitive issue, not least because business has political power. Corporations have easy access to Prime Ministers and Premiers. They’re not shy about demanding what they want. Corporations want profits, and one way to increase profits is to reduce costs through lower corporate taxes. Problem is, lower corporate taxes mean either a) higher taxes for people, or b) less money for public services.

Corporations prefer option b). That’s because taxes don’t go to corporations, they go to public services. Money spent on public services (like home care) is money that’s not spent on private sector goods and services (like big-screen TVs).[3] Corporations also like option b) because lower taxes lead to public service cuts. These cuts often create investment opportunities for business (running health labs, for example).

Corporate tax cuts boost profits automatically. These profits, corporations tell us, pay for new investment, which creates jobs for working people. Therefore, workers should support lower corporate taxes, right?

That’s what we’re told. It’s certainly what Premier McGuinty thinks. Their plan gives corporations tax cuts worth more than $8 billion a year.[4] Over half of this tax cut comes from the Harmonized Sales Tax, which the Ontario Chamber of Commerce lobbied for and got. More than $2.4 billion of it is a cut in the Corporate Income Tax rate.

“People for Corporate Tax Cuts” is all about this $2.4 billion cut. All of the $2.4 billion goes to profitable corporations; most of it goes to corporations who quite clearly do not need it. The Big Six banks, for example, made $14 billion in profits in 2009, and that was after they paid out $8 billion in bonuses. There is no reason to think that giving more money to Rogers Communications (2009 profits of $1.5 billion) or Great West Life ($1.7 billion) will create any jobs. These tax cuts are strictly no strings attached!

Of all the ways the government could spend $2.4 billion, corporate income tax cuts are just about the poorest choice. For every dollar a government spends on corporate tax cuts, we get 30 cents back in economic growth. In contrast, every dollar we spend supporting unemployed and low-income people brings $1.70 in economic growth.

It’s easy to see why. People who are broke spend every penny they have. People and companies who are well-off do something else. They might go on trips to Paris. They might invest in other countries. They might pay down debt. They might save their cash until a better idea comes along. None of that creates jobs here at home.

The fact is, corporations have enjoyed corporate income tax cuts, federally or provincially, for the last decade. But in that time, the rate of investment in Ontario has actually gone down (see chart).[5]

Corporate tax rates are not preventing investment in Ontario. According to the KPMG consulting firm, Canada has the lowest corporate income taxes and the second-lowest overall tax costs for business of 10 competitor countries they studied.[6] The Toronto region has the fifth-lowest business taxes of 41 large international cities KPMG looked at. Just as importantly, taxes only account for (at most) 14 per cent of location-specific costs for a business, KPMG says.[7]

Ontario’s corporate tax rates are already competitive – and then some. If low business costs were all it took to boost the economy, we’d be leading the pack. We’re not. The countries that are blasting their way out of the recession are Japan and Germany. They both have what some Canadian politicians would see as insanely high tax rates.[8]

The only thing corporate tax cuts guarantee is the transfer of money to corporations from the rest of us. This can only lead to weaker public services and greater economic inequality.

Growing inequality is the number one workforce trend of the last 30 years. By and large, the source of that inequality is the transfer of money from workers’ wages to corporate profits. The share of the economy going to wages is lower than ever. The share of the economy going to profits is higher than ever.[9]

A big chunk of that money just goes to high salaries for corporate executives. In 2009 – during the recession – the typical top-100 CEO in Canada made $6.6 million. That’s 155 times what the average Canadian worker made.[10]

The richest one per cent – one per cent – of Canadians make 17 per cent of the income in this country.[11]

It’s the same story the world over. Workers are seeing cuts to the public services they need, cuts to wages, cuts to pensions and benefits, more part-time and temporary jobs, and more unemployment and underemployment.

Anyone can see that something is wrong.

The McGuinty wage freeze will transfer money from college admissions clerks and workplace safety inspectors into the pockets of corporate CEOs. But what’s happening today is not about OPSEU members. It’s about all working people. This year, corporations told us that nickel miners in Sudbury were paid too much. They told us grocery clerks at Loblaws were paid too much. Heck, they even told us reporters were paid too much.

You would think that, after driving the economy into a brick wall, global corporations would take their foot off the gas and work for a fairer economy. Instead, the reverse is true. Corporations everywhere are using the crisis to increase inequality. That’s what the protests in Europe are about. Ireland is a perfect example: first, ordinary citizens bailed out their reckless banks; now they are paying for the bailout with “austerity” measures that will still be hurting people a generation from now.

Here at home, it’s clear that many of Premier McGuinty’s priorities are upside down. He is pushing his corporate tax cuts through at a time when 15 per cent of Ontario’s children – 412,000 of them – live in poverty.[12] Every month, 375,000 people visit food banks. With so much wealth in this province, it’s shameful.

According to polling, the love affair between Ontarians and the corporations who rule us is over. In interviews with 1,000 Ontarians last August, the Angus Reid polling firm found that:

  • 76 per cent agreed that existing corporate income tax cuts should be postponed;

  • 81 per cent would support higher corporate taxes if it were used to pay down the deficit;

  • 75 per cent thought CEOs should make sacrifices to pay down the deficit; and

  • 75 per cent support a 10 per cent surtax on those earning $300,000 a year or more.

More and more working people are pushing back against economic inequality. More and more of us can see what’s causing it. “People for Corporate Tax Cuts” is part of a growing global resistance against the corporations who really run things.

Randy Robinson is OPSEU’s Political Economist

Notes


[1] For example, Britain up to the 19th century, the United States in the first half of the 20th, Japan and South Korea, in the second half of the 20th, and now China in the 21st. The best summary of this history is in two books by Cambridge University economist Ha-Joon Chang. See Ha-Joon Chang, Kicking Away the Ladder (London: Anthem Press, 2002) and Ha-Joon Chang (Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism (New York: Bloomsbury, 2008). Dr. Chang talks about his new book, 23 Things They Don’t Tell You About Capitalism online at http://www.youtube.com/watch?v=whVf5tuVbus .

[2] Sir John A. Macdonald’s “National Policy” built the Canadian Pacific Railroad, upgraded harbours, and subsidized the shipping industry (all with public money) to open up markets for manufacturers in central Canada behind a tariff wall that kept out more-developed competition from the U.S. For a quick summary, check out the Canadian Encyclopedia at http://www.thecanadianencyclopedia.com/index.cfm?
PgNm=TCE&Params=A1ARTA0005632 .

[3] And of course business makes no profit on publicly-run services.

[4] Dwight Duncan, Ontario’s Tax Plan for Jobs and Growth (Toronto: Queen’s Printer for Ontario, 2009) p. 15.

[5] Calculated from Ontario Ministry of Finance, Ontario Economic Accounts (July 2010), “Historical Tables.”  (Figures in 2010 dollars).

[6] The 10 countries studied were Australia, Canada, Mexico, France, Germany, Italy, Japan, the Netherlands, the United Kingdom, and the United States.

[7] See KPMG LLP, Competitive Alternatives 2010: Special Report: Focus on Tax. Available at ftp://ftp.competitivealternatives.com/2010_compalt_report_tax_en.pdf .

[8] See Jim Stanford, “Halo Came Off Canadian Recovery as 2010 Drew to Close,” The Bullet, 451 (January 6, 2011), p. 5 (available at http://www.socialistproject.ca/bullet/451.php), and KPMG LLP, Competitive Alternatives 2010: Special Report: Focus on Tax, p. 4 (available at ftp://ftp.competitivealternatives.com/2010_compalt_report_tax_en.pdf ).

[9] For a complete study of this, see Ellen Russell and Mathieu Dufour, Rising Profit Shares, Falling Wage Shares (Ottawa: Canadian Centre for Policy Alternatives, June 2007). Available at http://www.policyalternatives.ca/sites/default/files/uploads
/publications/National_Office_Pubs/2007/Rising_Profit_
Shares_Falling_Wage_Shares.pdf .

[10] See Hugh Mackenzie, Recession-Proof: Canada’s 100 Best Paid CEOs. Ottawa: Canadian Centre for Policy Alternatives, 2011. Available at http://www.policyalternatives.ca/sites/default/files/uploads/publications/National%20Office/2011/01/Recession%20Proof.pdf .

[11] See Jim Stanford, “Redirecting our rage at the real gravy train,” Globe and Mail, January 17, 2011. Available at http://v1.theglobeandmail.com/servlet/story/
RTGAM.20110117.escenic_1871148/BNStory/Other/jimStanford.

[12] Campaign 2000, 2010 Report Card on Child & Family Poverty in Ontario, p. 2. Available at http://www.campaign2000.ca/reportCards/
provincial/Ontario/2010OntarioReportCardEnglish.pdf.

 

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