Let us begin with a home truth: “Difficult times call for difficult measures.”
OK, now let us issue a clarion call for one of those difficult measures these difficult times require… “That’s why we propose an increase to the corporate income tax rate to generate revenues that will decrease our deficit and ultimately our $10-billion debt.”
Whoah! Who said that? One of the usual-suspect, left-wing labour think tanks? An NDP backbench troublemaker? Perhaps some oddball, hirsute professor from some backwater college—as Conrad Black once delightfully described me.
The answer is none of the above.
The proposal, in fact, comes from the New Brunswick Business Council, an august “nonpartisan group of leaders who have a deep, personal stake in this province and its future, and have demonstrated a commitment to New Brunswick’s economic growth and community development.”
Hardly a coven of Bolshie radicalism, the business council’s members in good standing include such iconic New Brunswick names as James D. Irving, David Ganong, Allison McCain and Derek Oland.
What would prompt such otherwise wise-in-the-ways-of-corporate-success folk to spout such… well, heretical rhetoric?
Brutal honesty perhaps.
New Brunswick has lowered its corporate tax rate to just 10 per cent, the lowest in the country, in a desperate bid to do all the things lowering business taxes are supposed to do. Goose investment, spur job creation. But instead, New Brunswick’s projected deficit has doubled to $356 million, adding to what the province’s auditor general describes as a “very disturbing” already-too-high debt trend.
As Susan Holt, the chief executive officer of the New Brunswick Business Council, told CBC News: “I think we were proven out that those [corporate tax] reductions didn’t stimulate the economy the way that they anticipated. So business council members believe that similarly returning the corporate tax to where it had been will not cripple the economy.”
While bumping provincial corporate taxes up to the modest 12.5 per cent national average “won’t eliminate our deficit overnight”—it would generate about $25 million in additional provincial revenues each year—”it’s a step in the right direction.”
Such a breath of fresh air. And, wait, it gets better. The council believes raising consumption tax rates—to wit, the HST—might actually “benefit New Brunswickers in the long run” by helping to decrease the deficit. What a concept! The fact is bringing down the deficit would do far more to Give us more corporate taxation. Please improve provincial competitiveness than any random collection of hail-Mary tax breaks to corporations that simply enable them to fatten their reserve accounts or plump up executive compensation.
Those seem to be the main drains down which taxpayers have poured billions in taxes uncollected over the last decade in the vain, trickle-down-theory/hope that corporations would somehow re-invest at least some of that windfall in their companies’ futures.
Consider federal corporate taxes. Since the turn of the century, successive Liberal and Conservative governments have hacked that rate nearly in half, from 28 to 15 per cent.
What’s been the effect of all of this?
Well, according to one study, the total amount of cash reserves hidden under the mattresses of Canadian corporations— what outgoing Bank of Canada governor Mark Carney calls “dead money” and Finance Minister Jim Flaherty describes as frustrating—has increased more than threefold in the past decade: from $187 billion to $575 billion.
And then there’s the untaxed cash corporations are shoveling into the pockets of their CEOs. In 1998, the CEOs of Canada’s largest 60 companies by market capitalization took home a little more than $2 million each. Not exactly chump change. But, by 2010, they were wheel-barrowing out the door three times as much, or more than $6 million per year per CEO. According to the Institute for Governance of Public and Private Organizations, “the median compensation of Canadian CEOs, which was about 80 times the average Canadian salary in 1998, has now reached a ratio of some 140 times.”
To add public policy insult to fiscal injury, the end result of cutting corporate taxes has been a lack of job creation.
Just before the recession began on 2008, 1.1 million Canadians were out of work, In December 2012, despite a supposed recovery and continuing cuts to corporate taxes, that number had risen to 1.35 million.
The New Brunswick Council is right to make the point that emperor-has-noclothes corporate tax cuts aren’t the path to our shining economic future.
Right. And brave.