What about job-creating tax cuts for jobs that are actually created?

Jan 28th, 2011 | By | Category: In Brief

Conservative minority Government House leader John Baird told reporters this past Monday: “We are reducing taxes for businesses because it creates jobs.” But is this really true, in all circumstances, all the time?

[UPDATED JANUARY 31]. Given all the growing turmoil and fixed-date electioneering in Canada’s provinces this year, Chantal Hébert has just suggested: “It may after all be the perfect time to get a federal election over with.” And then just yesterday we heard as well that “Tory tax cuts could trigger election,” and (the day before): “Both sides hone message in corporate tax-cut debate.”

The crux of the Harper Conservative message about carrying on with planned corporate tax reductions is that “If we want more jobs … Canada needs to be an attractive place for job-creators to do business” (Finance Minister Flaherty). On the other hand: “The Liberals and NDP argue it’s foolish to continue phasing in the tax cuts at a time when Ottawa’s finances are in turmoil and Canadian businesses’ taxes have already been brought down in line with other industrial countries.” According to Liberal leader Michael Ignatieff: “We think the way to create jobs is to invest in post-secondary education and help small and medium enterprises to become more competitive and take on more workers.”

So … who’s right here? Can we believe it when we read: “Corporate tax cuts to create 100,000 jobs: study”? Today’s “Labour Force Survey: 2011 revisions” from Statistics Canada suggests that caution is always in order when one is confronted by studies that make big or even small claims about job losses and job creation. As the statisticians have somewhat occultly explained: “Levels of employment and unemployment have been revised downward when using the new population estimates. For December 2010, overall employment was revised down 0.6%, mostly the result of a downward revision of the population aged 25 to 54, the group with the highest employment rate. However, the unemployment rate was unchanged for December 2010 … Compared with the employment peak of October 2008, employment in December 2010 was lower by 30,000 (-0.2%) based on the revised LFS estimates.” Or, as summarized by headlines in the press: “Not all jobs lost during recession recovered, after all.”

If we give further tax breaks especially to our biggest corporations (noted more in the past generation for cutting jobs than creating them, some would say), will they use this enhanced public generosity to create more jobs? Or will they just build bigger and better yachts for executive vacations? (That in itself could create a few jobs in the pleasure boat industry, no doubt, but …) One way of ensuring the former is to tie tax breaks directly to new jobs actually created. And there is a precedent for this kind of policy in something called the New Jobs Tax Credit (NJTC) used by the US federal government in the late 1970s. Not everyone who has studied the matter seems to agree that this is a good precedent for the early 21st century. But: “Some studies suggest that the 1977—1978 NJTC significantly increased employment … at a cost … far cheaper per job created than the recent economic stimulus.”

Liberal leader Michael Ignatieff has supported corporate tax cuts in the past. But he says now is not the right time for more cuts. For one thing, there is our ballooning federal deficit. And in 2011 : “We think the way to create jobs is to invest in post-secondary education and help small and medium enterprises to become more competitive and take on more workers.”

Neither side in our current Canadian debate may find this kind of proposal attractive, for their own good and bad reasons. But it does highlight the extent to which we hard-working taxpayers deserve something more credible and convincing than vague rhetoric about “an attractive place for job-creators to do business,” supposedly bolstered by studies sponsored by the same corporate sector that will benefit from the tax breaks (with a veneer of gently threatening hyperbole).

That is at least something to think about. As the Canadian House of Commons reconvenes this coming Monday, to test just how thin its patience its growing, and how great a need there probably is for yet another shuffling of the election deck in our current age of minority government and viral political discourse. And as a new so-called “Canadian Coffee Party movement” gets underway – “pushing only for well-researched and broadly supported changes  that will make Canadian governments and big businesses operate more honestly, ethically, openly, representatively, efficiently and effectively.” (And Amen to all that of course.)

UPDATE JANUARY 31: Today’s Globe and Mail has some related intelligence from Stephen Gordon, a professor of economics at Laval University in Quebec City and a fellow of the Centre interuniversitaire sur le risque, les politiques économiques et l’emploi (CIRPÉE). See: “Memo to Ottawa: Take jobs out of corporate tax debate.” Professor Gordon concludes: “there doesn’t seem to be much evidence showing that CIT [ie corporate income tax] rates affect employment one way or the other. People who expect the CIT cut to have a measurable effect on employment are likely to be disappointed.”  Professor Gordon does believe that there is a case for corporate tax cuts, generally, on other grounds. But: “Corporate tax policy isn’t about jobs, and it is a mistake to conduct the policy debate as if it were.” This will likely prove far too subtle for current Canadian political debate. It may nonetheless make a sensible point!

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