Deeper Corporate Tax Cuts Could Cost 46,000 Jobs, says CAW

January 26, 2011, 2:15 PM EST


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Cutting the corporate tax rate will cost the country jobs, instead of creating them, says CAW President Ken Lewenza in response to the claims by Federal Finance Minister Jim Flaherty that low taxes will boost the Canadian economy and employment.

"All that cutting the corporate tax rate will do is drain money from government coffers," said Lewenza. "This new tax cut will reduce federal revenues by $3 billion, a whole lot of money that could be better spent elsewhere. When corporate taxes are cut, it does not guarantee that companies will spend the money on research and development or on hiring more employees." 

New research by CAW Economist Jim Stanford proves that cutting corporate tax rates bear little relationship to increased staffing levels or a boost in economic activity. 

Corporate tax cuts have very little positive impact on employment, since there is very little change in investment as a result of them. When governments allocate large sums of revenue to corporate tax cuts, that means the money is not available for other priorities - like extending EI benefits for laid-off workers, investing in infrastructure, or supporting public programs through transfer payments (like health care or education), according to Stanford's findings.  All of those programs create far more jobs than corporate tax cuts.  Therefore, shifting money from EI benefits (or infrastructure or public services) into corporate tax cuts destroys net jobs.

This is confirmed by the federal government's own data.  The following table estimates the final impact on GDP of various government spending priorities.

Extending EI benefits has the biggest impact ($1.7 billion in total GDP from each $1 billion in benefits).  Cutting corporate taxes has the weakest (just $300 million in new GDP for each $1 billion in tax cuts).  By that measure, reducing corporate taxes by $3 billion will generate less than $1 billion in new GDP (or just under 10,000 jobs, based on the current average employment content of Canadian GDP). 

If the same funds were spent on extending EI benefits, GDP would expand by over $5 billion - generating 56,000 jobs.  The net effect of the tax cut is 46,000 fewer jobs for Canadians.

GDP Impact of Federal Fiscal Measures:

Final Growth of GDP from $1 billion Stimulus

Fiscal Measure

GDP Impact

($bil)

Support to unemployed & low-income

$1.7

Infrastructure investment

$1.6

Housing investment

$1.5

Other spending measures

$1.4

Personal income tax reductions

$1.0

EI premium reductions

$0.6

Corporate income tax reductions

$0.3

Source: Dept. of Finance Canada, Canada's Economic Action Plan Report #6, Table A.1, p. 142, for 3Q 2010.

Over the last number of years, Canada's tax system has shifted dramatically in favour of business, to the disadvantage of individual Canadian tax payers.

Since 2000, corporate income taxes in Canada have been cut 10 times, falling from 29.1 per cent in 2000 (including a 1.1 per cent surtax) to 15 per cent by 2012, a cut of almost half over that 12-year period.

Lewenza says its particularly ironic that Flaherty chose to make his statements at an auto parts plant, a sector which has seen its employment levels plummet during the more than a decade of tax cuts.

In 2000 Canada employed 100,000 workers in auto parts.  By 2010, the tax rate fell to 16.5% - yet auto parts employment fell to barely 60,000 - the deeper corporate taxes are cut, the smaller the auto parts industry gets.

AGS (formerly A.G. Simpson), where Minister Flaherty visited this morning, has endured large financial losses through the years of dramatic tax cuts.

"Lower corporate tax rates mean nothing to a company that's losing money," said Lewenza. "Corporate tax cuts will not turn our country's economy in the right direction -our experience has shown the exact opposite."

Click here to view the document How Corporate Tax Cuts Actually Destroy Net Jobs by Jim Stanford, CAW Economist.

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