Wednesday, January 30, 2013

Where's Our Corporate Tax Referendum?

The big news today is that New Brunswick Premier David Alward is willing to consider a referendum on the HST. CBC News reports, "the provincial government could hold a referendum on an increase in the harmonized sales tax before the 2014 provincial election."

Alternatively, the proposed HST increase could simply become an issue in the next provincial election, as the local newspaper suggsts today, with Alward running against it. No doubt the newspaper would enjoy that; it would be like the toll highway debate.

As David W. Campbell observes, "if Al Hogan turns lock stock and barrel against you – you end up with 11 straight days with the front page story on the evils of toll highways. By election day poor old Camille Theriault had little horns coming out the sides of his head."

The last thing we need is to have our electoral politics decided by our sad and biased little local newspaper.

So I say - by all means, hold the referendum. But while we're holding the referendum, let's put some of the other taxes to the vote, too. In particular, why don't we find out what the electorate thinks about the corporate tax rate.

After all - as was widely reported outside the traditional media today - it's Corporate Tax Freedom Day today - the day corporations finish paying their 'share' to the government of Canada, and begin paying themselves.

(I listened to some whiny shill from the Canadian Taxpayer's Federation today on News 91.9 try to undercut the premise; he argued that corporations pay thirty-three percent of their net profits in tax, and that the corporate hoard of unused cash was created by their borrowing it - among other whoppers).

We know how little corporations pay by looking how much rescinding the last corporate tax cut would raise. According to figures widely cited today, while raising the HST two percentage points would raise $270 million, and while rescinding the most recent income tax cut would raise 320 million, rescinding the previous corporate tax cut (which sent sent the lower rate down to 4.5 percent and the higher rate to 10 percent) would raise only $25 million.

Of course, that just tell us how little tax corporations are paying. To put things in a little perspective here, let's keep in mind that the combined wealth of Arthur, James and John Irving is $8.07 billion. $25 million? They lose that in their couch cushions!

So where are we in the world of corporate tax rates, anyways? The province is shrinking, there's almost no corporate investment coming in, and business is in the pits. So it must be the effect of high corporate taxes, right?

No. In fact, the opposite - New Brunswick is rated as the lowest corporate tax province in the country. "The lowest METRs (Marginal Effective Tax Rates)  are in New Brunswick due to its relatively low corporate income tax rate of 10 percent, as well as the Atlantic Investment Tax Credit, which benefits the manufacturing and forestry industries."

What does our government do in the face of a persistent deficit crisis? It lowers corporate property taxes - benefiting those starving industries like Costco and Walmart. "NB Power will save $1.5 million alone on its property tax bill once the policy is fully implemented, followed by J.D. Irving Ltd. ($800,000) and the Potash Corp. of Saskatchewan ($600,000)."

Do you think that this is a tax measure that would be supported by the people in a tax referendum? It wasn't even supported by the province's Business Council, which is in fact recommending the government return corporate taxes to the 13 percent level (personally, I don't see why corporations which have billions of dollars can't pay taxes at the same rate I do, but that's another story).

If pushing the corporate tax rate lower and lower would actually help the economy in this province, then I'd be in favour of at least thinking about it. But the evidence says otherwise. Corporate tax cuts are not some sort of magic cure for the economy. They do not create more jobs.

Here's Rana Foroohar, in Time not too long ago: "Fundamentally, lower taxes aren’t the reason that businesses choose to invest, or not, in a certain country. As Warren Buffett told me when I interviewed him late last year, “The idea that American business is at a big disadvantage against the rest of the world because of corporate taxes is baloney in my view. In the 50s and 60s, corporate taxes were 52%, and we were making all kinds of [job] gains.”

"True enough. In fact, you can see more and more evidence for the fact that business doesn’t locate in a particular country just because it’s cheaper to do so. Consider the recently released Harvard Business School study looking at insourcing and outsourcing decisions among 10,000 alumnae who are running American businesses.

"The key reason for outsourcing wasn’t labor cost, but a combination of cost, proximity to market, and (most importantly) better worker skill sets abroad. In order for America to create jobs at home, we need to do the heavy lifting to reform education and develop workers who can do the sort of jobs businesses need them to do."

But that's exactly the opposite of what our provincial government is doing. It's putting the squeeze on education and skills development. Remember just last fall, when education minister Jody Carr informed schools they'd only be getting 70 percent of their allocated funding?

We have the money, apparently, to give tax breaks to Wal-Mart, but not to fund our children's education. Not because of any well-founded economic strategy, but because, um, well, ... why? We don't know.

So, again, by all means, let's hold tax referenda. Let's get the issue out there. Let's have some kind of open debate on the matter (a real debate, not some Al; Hogan parody of a debate). How much is fair? How much should corporations pay to support the roads their tucks drive on, the trees they harvest, the skills of the people they employ, the health of the people who work for them?

Let's have a referendum on corporate taxes. Let's have a referendum on how much the wealthy should pay in taxes. Let's also vote on the tax credits they get, the forgivable loans they get, and the other incentives they get. And then - and only then - should we have a referendum on the HST.

1 comment:

  1. I must say that I agree with everything you wrote. I find New Brunswick's stance on taxation, provincial debt, the deficit, and public services to be extremely regressive. Remember when finance minister Blaine Higgs told the CBC that New Brunswickers must "want less" in the way of services for their tax dollars? Meanwhile, his government goes and cuts property taxes for big business, and refuses to restore previous corporate tax rates that were lowered by Shawn Graham's Liberal government. (The NB Liberal and NB Conservative parties have such eerily similar policies that they're pretty much the same party, in my view). In effect, the government is saying that regular people have to accept reductions in their quality of life so that large corporations can rake in even bigger profits.

    Such issues also illustrate a real problem with New Brunswick media. The media have limited the bounds of debate by not engaging in any kind of real dialogue about the relation between corporate taxation, government budgets, and public services. They haven't even noted that New Brunswick has a long history of gradually altering its tax code to be more favourable to large corporations (though not so much small businesses). Remember when they began to abolish the Large Corporation Capital Tax starting in 2005, and then it was fully abolished by 2009? That tax raised $47.3 million in 2004 alone. That is a lot of money for such a small province. And yet, not one peep from the Irving media, the CBC, or any other mainstream media source, which would rather report on entertaining but trivial events than a dry, cerebral, but very important issue like tax reform.

    And so the job of raising awareness of these problems falls to people like you and me - independent writers, journalists, bloggers, whatever you want to call us. Keep up the good work.

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