As I’ve shown them evidence that companies who receive tax breaks don’t hire more people when compared to hiring prior to the tax break, I’ve noticed an interesting trend: they start shifting the goalposts. Their claim moves to one of indirect job creation.
So where they were previously claiming that companies that get more tax breaks hire more people, now their claim is becoming that companies who get a tax break spend more money, and the vendors where they spend that money create jobs to accommodate demand.
Here are some things I see wrong with this rhetorical adjustment.
First, they’re already spending a bunch of money. That’s what expenses are: everything they spend money on. And often they spend more money on expenses than they make in profit.
For example, in the last quarter of 2018, Loblaws made $11.218 billion. Their operating income for the same period was $445 million. That means their expenses were about $10.773 billion. So, they’re already spending nearly $11 billion: to employees, to vendors, whatever. That money is already in the economy.
Now, let’s say that this company operated out of Alberta and met all the requirements for having to pay the corporate tax rate in Alberta, which is 12% but will soon drop to 8%. If my understanding of corporate income tax is correct, they’d pay 12% of their operating income, or $53.4 million. When it changes to 8%, they’ll pay $35.6 million instead, which means they’ll keep $17.8 million more than they had been.
Whereas, they were injecting $10.773 billion into the economy previously, now they’ll get to inject $10.791 billion into the economy.
Maybe it’s just me, but this increase doesn’t seem like it would lead to the creation of significantly more jobs than they’re already creating indirectly.
Second, I agree with the idea that spending more money leads to more jobs. After all, if companies have no customers to buy their products or services, they’ll go out of business. But it’s increased demand, not increased profits, that leads to more jobs. Theoretically, a corporation can have profit and not even spend it, so higher profit isn’t even a guarantee that the economy will see higher spending.
Third, governments spend money. They don’t hoard the taxes they collect; they spend them: on building and maintaining highways, on building schools, on staffing emergency rooms, on paying utilities for government buildings, and so on. All of those require labour, which means jobs. So while it may be true that lower taxes will lead to more money available to a company for spending, potentially creating additional indirect jobs, higher taxes also create additional jobs because that money is now being spent by the government instead of by the company.
Which actually leads to this question: if Loblaws, hypothetically speaking, has $17.8 million more to spend in the economy but the government has $17.8 million less to spend in the economy, will the tax cut lead to a net increase in jobs, or will the number of jobs simply remain the same but just change where in the economy they reside?
Fourth, if you agree that tax cuts will lead to more jobs because companies have more money to spend, does that mean you agree in a higher minimum wage? After all, if workers have more money to spend, wouldn’t that also lead to more jobs?
Frankly, I don’t buy this change in rhetoric anymore than I bought their previous version.
They rationalize lower corporate taxes by claiming that it will lead to more jobs and indirectly to more government revenue.
Except that’s just a myth.
For example, a 2017 study looked at the payroll changes at 92 publicly held U.S. corporations that posted profits every year from 2008 through 2015 and paid less than 20% of these earnings in federal income tax, which is less than the top 35% tax rate which is typically the target of tax cut supporters. What they found was that more than half of these companies actually shed jobs during the period, despite the overall economy boosting payrolls by 6%. Of the 92 companies studied, the median change in payrolls was -1%. Many of these companies used their increased profit to buy back stock, helping to boost the price of their company’s shares. Of those who cut jobs, the top 10 each spent $45 billion in stock buybacks over the 2008–2015 period, 6 times that of the S&P 500 corporate average. As well, CEO pay among these companies rose 18% during the period, compared with a 13% increase among S&P 500 CEOs.
Likewise, a 2012 study looked at the impact of changes in US tax policy since World War II, including both personal and corporate tax rates. They discovered that cuts to personal income taxes boosted employment, investment, and consumer spending; however, while cuts to corporate taxes boosted production, they didn’t lead to much new hiring, presumably, they’re reinvesting their new money into initiatives that boost production (perhaps automation or other efficiencies).
Finally, a 2011 study found that from 2000 to 2009, 198 Canadian companies on the S&P/TSC composite increased their profits by 50% during that period and were paying 20% less in taxes. However, the number of jobs these corporations created was lower than the average employment growth in the economy as a whole. As well, despite corporate taxes dropping from 28% to 19% during that period, government revenue during that period fell: cutting corporate taxes did not increase government revenue.
And these are only 3 studies I had time to look up this morning. There are plenty of others.
If you want to increase jobs, then give workers more money. Reduce their taxes. Increase their wages. When consumers have more money, they spend it. Spending increases demand for products and services. And increased demand creates more jobs.
After enduring their sales pitches for many minutes, they finally asked me when I will I be going. I told them I am not going. They asked me if I thought it was a good deal. I told them I thought it was a good deal for someone who regualrly travels to Orlando or goes on crusises.
It certainly wasn’t a good deal for me. I would have had to spend $900 (not including travel expenses to get to Orlando from Lethbridge) in order to enjoy a vacation I never do. I never go to Orlando, and I never go on cruises.
It’s like going to the grocery and seeing a 1 L jar of sauerkraut on sale for only $5. If I regularly buy sauerkraut for $5 for 500 mL, then this is a good deal. If I never buy sauerkraut, then this is a terrible deal: I have to spend $5 more dollars than I would have spent otherwise.
This vacation package was the same thing. I took having a “manager” come on the phone to try closing the deal before I finally got it through their heads.
]]>The downside is that such a practise is unfair to single wage earners and may discourage some people from entering the workforce (so their partner can pay less taxes).
How do you feel about income splitting?
]]>John Kolk, chair of the SAAEP Advisory Committee stated:
“A natural abundance of wind and sunshine in the region (recording nearly 2,400 hours of sunshine a year) provides the needed inputs to use the latest wind and solar technologies to generate an increase in renewable energy. Combine that with the opportunities for crop producers to benefit from ethanol production and improved waste management through bio-mass, and this region is in an excellent position to be a leader in these alternative, clean sources of fuel, electricity and thermal energy.”
Some interesting tidbits I discovered:
Unfortunately, they don’t seem to have a website.
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