In a stunning rebuke of trickle-down economic theory, the following news-item was the headline story in the April 7, 2011 Business pages of the Metro National newspaper, as reported by The Canadian Press news service. In a landmark study, "Companies that reaped the most benefit from massive tax reductions over the past decade underperformed on job creation, the Canadian Centre For Policy Alternatives says. That finding appears to undermine the Conservatives' rationale for corporate tax cuts. The Ottawa think-tank tracked the job-creation record of almost 200 of Canada's leading companies, from 2000 to 2009. During that period, those companies reported a 50% increase in profits, while paying 20% less in taxes. But from 2005 to 2010, employment creation at those companies was 16% lower than the national average. Conservatives and right-wing economists have long argued that reducing corporate taxes will make Canadian firms more competitive and create more jobs. But based on the evidence, the CCPA study concluded that the firms benefitting most from corporate tax reductions created fewer jobs, not more, pocketing the tax reductions instead."
37 comments:
Unfortunately, since most of those on the radical right these days seem to possess "95% protection versus reality", I doubt that this data will have much impact on their views and policies.
Yeah, but that's up there, in Socialist Commie Canada.
Down here in Everything is Better US of A (USA! USA!), it works as advertised. Because what company would keep extra money instead of using it to hire people to do stuff that employees are already doing, already?
Indeed, we Americans are shocked at this kind of corporate dishonesty! Trickle-down economics WORK here, as Reagan proved!
Interesting. I wish I could say "surprising," but well...
Socialism for the ultra-wealthy, capitalism for all the rest of us.
Don't expect the conservatives to quit saying it, and don't expect the government to stop giving it.
Here's the thing about corporate taxes, corporations don't really pay taxes, people do. Corporations only have costs and revenues. A tax is just another cost to be passed on, either to the consumer in the form of higher prices or to the shareholders in the form of reduced dividends. It may be satisfying to think taxing corporations involves sticking it to the fat cats, but the reality is those rich executives are not feeling the pinch if the tax goes up. They just pass those costs right on down the line to you and me.
Not really, but that's what they'd like you to believe.
If you really believe that, then you have to believe the same thing about individuals. If my personal taxes go up, then I will simply pass those taxes along to whomever I deal with, as a demand for higher wages from my employer, for example. As a consequence, everybody's passing the buck on paying taxes.
But I understand why you would say that, it one of the essential lies that the rich and corporations tell you, just like the lie that if we decrease corporate taxes, corporations will hire more workers, or pass those savings along to you in the form of reduced prices.
As the comprehensive study by the CCPA proved, it is not true. They simply retain the extra income.
Taxes are a way of spreading the cost of services that we all use. Corporations are legal persons. Therefore, they should shoulder their reasonable share of the services they use, just like every other person.
To be more plain, I, also, have only costs and revenues, so that argument just doesn't wash for me.
The difference is, you may want to pass on your "costs" to your employer, but you have no leverage. The employer will pay you what it deems appropriate regardless of your personal financial situation. Corporations, on the other hand, will simply charge for their goods and services whatever the market will bear. Whatever other costs arise as a result of taxation will be absorbed by shareholders in the form of reduced share value and/or reduced dividends. These days, the average shareholder is not Warren Buffet, it's more likely to be the teacher's union or your mutual fund portfolio. Either way, every cent of corporate tax is ultimately paid for by you and me.
Again, no, no, no! Unless the corporation is a monopoly, they have no leverage either.
And if that theory were true, then any "tax savings", from reduced corporate taxes, would have been passed along as lower prices on goods, or as increased dividends to shareholders. Neither of those things happened in the past decade, according to the CCPA study.
There is an inelastic relationship between corporate taxes and prices, for a whole host of reasons. I'm not qualified to fully explain it, since i'm not an economist, but if you find yourself an economist or good tax theory textbook, you can probably get a better understanding of this.
And to say you have no leverage seriously discounts your value to the company and your negotiation skills, so you've lost before you even begin.
:D
I don't think that one necessarily follows the other, insofar as higher taxes means higher prices, therefore lower taxes should result in lower prices. First of all, the difference in taxation rates over the last decade is only a few percent, far below the rate of inflation. Any savings realized by the corporations on taxation would be masked by inflation.
As to your second point, you may be right. I don't work in the private sector, so the idea of actually negotiating for a pay raise is something akin to Chinese calligraphy or assembly language, mysterious and impenetrable. My employer gives me whatever the budget will allow, nothing more.
So reaganomics doesn't work?!
Shocking!
Here is what I don't understand. If "trickle-down economics" doesn't work, then explain the following:
Reagan won reelection with 49 out of 50 states (he only lost the home state of his opponent). How did that happen?
I think most people would agree Reagan is the most conservative US President in recent history. He did this in the era before the rise of the "right-wing media." Before Fox News, before talk radio, before conservative blogs, etc.
If Reagan's policies and presidency was such a failure, then why did liberal-leaning media outlets recently try to cast Obama as Reagan?
You might like some of the books or articles by Neil Brooks on tax policy, he has a new one out intended for a general audience.
http://www.osgoode.yorku.ca/faculty/Brooks_Neil.html
Rognar: i'm a political scientist by education. I will gladly defer to others that are experts in the economics of taxation!
Bree Yark: please try to stay on topic. I didn't say anything about Reagan, Obama, or Fox News in my post.
I'm worse, I'm a geologist.
czak said...
You might like some of the books or articles by Neil Brooks on tax policy, he has a new one out intended for a general audience.
http://www.osgoode.yorku.ca/faculty/Brooks_Neil.html
His CV is impressive. Do you know the name of the book, and is it available through Amazon?
Reagan is on topic, since Reagan and "trickle down economics" are closely associated with each other (as demonstrated in Tequila Sunrise's comment).
Rognar:
From least-to-most despised, I think it goes geologist, political scientist, then lawyer (at least that's what I tell my lawyer friends).
Just because we treat geologists like dirt doesn't mean they make the top 3 list. From bad to worse, the top/bottom 3 are:
#3. Politicians
#2. Lawyers
#1. Lawyer Politicians
Bree Yark: My topic is a recent Canadian study, revealing that reduced taxes did not result in higher employment. I'm happy to have a reasoned discussion about that. Perhaps we can have a discussion about the successes and failures of the Reagan presidency another time?
:)
Bree Yark! said...
Just because we treat geologists like dirt doesn't mean they make the top 3 list. From bad to worse, the top/bottom 3 are:
#3. Politicians
#2. Lawyers
#1. Lawyer Politicians
Yes, I agree, politicians rank at the bottom in terms of trustworthiness. But they tend to stay above the fray, while those geologists can be found wallowing in the dirt.
That's cuz while geologists play in the dirt, politicians sling mud. ;^)
Bree Yark: a modest proposal ... the comment features of blogs are ill-suited for a full expansion of your economic views.
Perhaps you could post your complete position on your blog, so I don't waste your time with endless questions?
:)
Nah, my bree yark blog is strictly limited to things concerning fantasy/gaming. Although I suppose liberal economic theory does qualify as "fantasy"... ;^)
While I'm a very "political" person, I generally try to avoid bringing up politics in non-political contexts. I usually limit my political comments to political posts and political blogs.
Fair enough. Peace out!
I'd hate to make this an overly political comment, but on the surface their claim doesn't mean a whole lot.
They examined only a select group of Canada's largest publicly traded companies and attempt to extrapolate a desired conclusion from that.
Using only 2 data points (a problem to start, only 2005 and 2010) they say the large companies only generated a 5% increase in jobs, whereas the economy overall generated a 6% increase. I'd like to know where the overall increase in jobs came from during that period for comparison.
Smaller corporations? Which would also have benefited from lower corporate tax rates...
And, without seeing their data, since they didn't provide any in their report, I'd likely guess that the recent recession certainly would hit large corporations harder than say, government which likely made up some percentage of the overall job increases from 2005 - 2010 and tends not to lay people off as quickly (if at all...) and is hardly a fair comparison.
Their report made no mention of what corporations did with their profits...they might well have distributed them as dividends to shareholders. The report does not say.
Also, it's interesting to note that their own figures suggest that as federal corporate tax rates dropped from 2000-2010, the total amount of taxes paid actually went up until the financial meltdown, when naturally profits and taxes for almost everyone fell. So, their own data could be used to suggest a positive benefit to lower corporate tax rates: increased competitiveness and higher profits, thus higher taxes paid. I'm not saying that's really the case, but is just as likely as their conclusion.
I guess I'd also have to ask the authors, do we think corporations would have had better job creation records with higher tax rates?
Anyway, sorry to make this so long and I don't want this to degenerate into a political flame-war, but thought an additional perspective would be of interest.
All perspectives are welcome. Presumably their complete study is available, so you can satisfy yourself on the objectivity and validity of their findings.
I don't know much about Canada, but I would assume the economic theory is sound worldwide. I can provide an example in the U.S.:
In the 1950's, the tax rate on the rich was pretty high.
If you look at per capita incomes and standards of living from 1954 until now (in the U.S.) you will see a sharp decline in per capita income and standard of living. In 1954, one income could make a pretty fair living. In 1990 a single-income household was asking for hardship.
When the tax rates were adjusted upwards in the 1990s and rich people were paying more taxes, a budget surplus was created and standard of living rose.
The taxes were again cut for the rich in 2001, and massive spending accounted for less money going to the states, so college tuition and state and local taxes skyrocketed. Standards of living fell, and it was again hard to make a decent wage. Also, we began hemmorhaging jobs at a fantastic rate.
Are tax cuts a good thing? I leave it to the reader to decide.
The name of the book is The Trouble With Billionaires and it is up on amazon. The co-author is Linda Mcquaig.
http://www.amazon.ca/Trouble-Billionaires-Linda-Mcquaig/dp/067006419X
If you want a preview of the book, the author's had an exchange with some people on the right in the Financial Post:
The initial op ed
http://opinion.financialpost.com/2010/09/16/terence-corcoran-the-myth-of-in equality/
First Response
http://opinion.financialpost.com/2010/09/27/the-great-inequality-debate-lin da-mcquaig-and-neil-brooks/
Second Response
http://opinion.financialpost.com/2010/09/27/the-great-inequality-debate-ala n-reynolds/
Earlier related article
http://fullcomment.nationalpost.com/2010/09/15/timothy-noah-the-great-incom e-divergence-is-changing-america-for-the-worse/
@Paladin
Their complete study is what I was referencing from the CCPA's website. It's only 6 pages:
http://tinyurl.com/3katx6u
Unfortunately, I think what the news reporters did was simply refer to the CCPA's press release and just report the findings the organization wanted rather than looking for themselves and considering the validity of the study. Sadly, we could really use better journalism...
@steelcaress
Remember that correlation does not equal causation. Many things have changed since the 1950's. One could just as well argue that more women and minorities are in the workforce since the 1950's and as a result, our standard of living has gone down. I don't believe that's the case, but is a similar example to yours.
And recall that our budget was in surplus for only about 3-4 years in the late 90s (1998-2001) on the tail end of the Internet Tech Bubble, so that doesn't really explain increases in standard of living for the rest of the budget deficit 90s (which in inflation adjusted dollars weren't much different than our budget deficits in the 2000s).
Coldstream said...
@Paladin: Sadly, we could really use better journalism...
And more money for in-depth research. But like most things, we get what we're willing to pay for.
Thanks for this. I've posted it on my news blog.
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