C.D. Howe And The Three-Point Tempest

This week the election campaign delivered another manufactured controversy in which Canadians will take no interest: should the level of corporate taxes be 15%, or 18%?

The three-point tempest between Conservatives and Liberals has brought forth the tired, predictable outcome it always does. Jim Stanford, an economist in the employ of the Canadian Auto Workers, states that tax cuts to corporations have resulted in declines in investment and that in any case “there are better ways of creating jobs. If you want bang for the buck, investment in training, education and in helping households and companies green their operations will lead to more jobs.” The article from which this quotation is excerpted helpfully informs the reader that Mr. Standford is a “so-called left-wing economist.”

I do hate to sound like a vulgar Marxist, but of course a Canadian Auto Workers economist would argue this. Let’s continue on that track. When next Jack Mintz of the C.D. Howe Institute is summoned forth to differ, Julian Beltrame (of Canadian Press) fails to produce the necessary appositional phrase “so-called corporate mouthpiece” — but such Mr. Mintz is. The C.D. Howe Institute is funded by and speaks on the behalf of banking, oil, finance and manufacturing industries. Everything published by this outfit is both a foregone conclusion and an elaborate punch line.

Here is the set-up: the past and present staff of C.D. Howe who labour in service of the free market and who champion private enterprise all work in the public sector. Jack Mintz, Bill Robson, Richard Lipsey, David Laidler, John Richards and William Watson are, to a man, university professors. The closest most of them have ever come to the private sector are their editorial jobs. For instance, William Watson (since 1977 a professor at McGill) has a pulpit at the National Post from which to preach the religion. Nothing wrong with that. But I do wonder: if their ideas are so great, why does this august collective arrange their personal affairs precisely so that they never have to be governed by them? Perhaps one clue by way of answering this riddle is Clarence Decatur Howe himself, the Minister of Everything. He was a bottom-line sort of fellow, focused on the result and not much interested in the niceties of debate over the policies that might get him there.

Few people care whether the corporate tax rate is ten or twenty or thirty percent or forty percent. In the United States it is thirty-five, but the number itself means nothing, and everyone knows it. (Both Canada and the United States have a built-in bias against earned income — wages and salaries — and a tax regime that favours dividends and capital gains: in other words, as Leona Helmsley said, taxes are for the little people. Don’t wait for the Liberals or the Conservatives to open that topic.) Canadians I suppose have absorbed the Newtonian superstition that any action upon corporate taxes will result in an equal and opposite reaction upon jobs. If it were indeed the case however that a tax cut = a job created, everyone would be working at General Electric, and Jeffrey Immelt could be relieved of his Chairmanship of the Council on Jobs and Competitiveness. A good idea, but that’s for another election campaign.

2 responses to “C.D. Howe And The Three-Point Tempest

  1. Thank-you for the thoughtful reply. Some good points here.

    1. “Wayne, this really is as simple as it gets, a basic Economics 101 type of thing. You suggest that a tax cut = a job created which is nonsense but the corollary is often true; a tax hike = a job loss.”
    Actually I think if you read again you’ll see I am not arguing tax cut=job created; I merely state that many believe this. I see no necessary cause and effect, which is why I called the idea a Newtonian superstition. The idea that government can kill but not create jobs is often summarized in the Chicago school phrase that you can’t push a string. That’s true enough.

    2. Taxes can and DO make a huge difference in the operation of a business but not only the taxes that are levied by the Provincial and Federal governments on “Profit” at the end of the year but the even more insidious taxes, fees, assessments, user fees, property taxes, business taxes, etc., levelled by municipal authorities upon your “Pre Profit Cash Flow”.
    I hope I didn’t give the impression that taxes make no difference. What I did say is that there are instances (US corporate tax rates was the example) where the nominal rates are meaningless because the tax laws are so complex and opaque. Fixation on this nominal rate is misleading, which in a way is I think your point also.

    3. “Please, give your head a shake and start thinking with your brain instead of your heart and realize that taxes and big government are a blight upon a just society.”
    You may disagree, but it happens I’m pro business, pro free market and a classical Conservative on economic matters. I agree with Adam Smith that large concentrations of economic power (large corporations) will conspire with government to form fixed markets, i.e. cartels, and to lobby, collude and reshape the laws in their exclusive favour. I agree with Ricardo on the principles of free trade, and I see many examples of free trade subverted. Here’s one: Why on earth is rice grown in the California desert under huge taxpayer subsidies? You can not answer that along Ricardian lines: the answer is Adam Smith’s market distorting corporations. Conservatives used to be against this sort of thing. None of this, I suspect, applies to genuine business persons like yourself who I presume do not engage in market-distorting practices and who must live in the real, supply and demand economy. GE does not – it is heavily subsidized, and for this reason I bring it up as a warning to simplification by tossing around numbers like “15% vs 18%” without context.

    4. “Government “jobs” are the exact opposite, as there is not only no creation of wealth but the necessity to bleed money from the rest of society to pay for them through the taxes that you so lightly speak of.”
    Again, I don’t think my point was to make light of this issue but rather the light manner in which politicians were debating it. If I’ve been at all hypocritical then of course I deserve to be brought to task on it, but I can’t believe you really see the public sector only as a mere leech upon wealth creators. It is possible you’d prefer not to have the public sector paving the roads and providing police and the rule of law and the security of your property, and that you see no value in the jobs this creates. As you now, not all work is inherently profitable (national defence, for example), but it has arguable value nonetheless and adds something to the security and order and wellbeing of a society. I think you may have missed my central point, that the devil is in the details. You began by stating “this really is as simple as it gets.” My disagreement with you is that, no, it’s complex; and I would like to make the discussion complex, and I would like politicians not to oversimplify, because it insults our intelligence and gets us nowhere. Respectfully, -W.

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  2. Wayne, this really is as simple as it gets, a basic Economics 101 type of thing. You suggest that a tax cut = a job created which is nonsense but the corollary is often true; a tax hike = a job loss.

    I have been a self employed businessman my whole life and there is a huge difference between a life where you gain your recompense from your work provided to your employer and being the employer, trying to make the payroll. Taxes can and DO make a huge difference in the operation of a business but not only the taxes that are levied by the Provincial and Federal governments on “Profit” at the end of the year but the even more insidious taxes, fees, assessments, user fees, property taxes, business taxes, etc., levelled by municipal authorities upon your “Pre Profit Cash Flow”. These must be paid whether or not you can afford them and are much higher than the same taxes administered by the same civic government against property not being used by a company. The property tax in Calgary is well in excess of 3 times higher for a business than for a residence of equal size and property value.

    No government in the world has ever created a job, they are created solely by the enterprise of persons trying to make a living for themselves and jobs are a natural extension of that process. The jobs created in that process are part of the wealth creation that is inherent to Democratic Capitalism and are true jobs, producing a tax base from which society can run. Government “jobs” are the exact opposite, as there is not only no creation of wealth but the necessity to bleed money from the rest of society to pay for them through the taxes that you so lightly speak of. Please, give your head a shake and start thinking with your brain instead of your heart and realize that taxes and big government are a blight upon a just society.

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