It's been interesting watching the back and forth between the Conservatives and the Liberals regarding corporate tax rates. However, I've become frustrated with a question that isn't being asked of the Liberals.
- Lower it
- Keep it the same (currently 18%)
- Raise it
The current state of the corporate income tax research indicates that a corporate tax cut, dollar-for-dollar would do more to improve the state of the Canadian economy than any other tax. Any revenue shortfall could be made up with a rise in the GST and any equity concerns can be made up with an increase in GST rebates. I wouldn't claim to know what the 'optimal' corporate tax rate is, but I would argue we do not need to know. We can cut the rate somewhat, study the effects, then decide how to proceed from there.
Although the Conservatives have moved in (my view) the correct direction with respect to the corporate tax rate, I cannot agree with their justification that it will greatly help improve employment. As Prof. Gordon has pointed out, corporate tax rate policy, like most economic policies, isn't about jobs. It would be hard to argue that dollar-for-dollar, a corporate tax rate cut is the most efficient way to increase employment.
But the Liberals, in my view, are making far less sense. From the Vancouver Sun:
"(Stephen) Harper is on a tour to promote corporate tax giveaways. I've just come from meeting all the chief executives of the country and told them that's a bad choice when we are in a $56-billion deficit," Ignatieff told a small group of reporters. "We said our priorities are education, learning, care, getting the deficit under control and we had a great reaction from everybody in the room."
Which begs the question: If higher corporate taxes are better under a deficit, why not raise them?
I can see two possible reasons why to maintain the corporate tax rate at 18%:
- Because we (the Liberals) believe 18% is the optimal corporate tax rate
- Because we believe that the previous tax cuts need to be studied in further detail to find out what the effects were (as discussed above).
The Liberals are making neither of these arguments. They have put forward no reasons why 18% is optimal. They have not suggested that the previous cuts be examined in more detail (by, say, increasing the funding to the PBO). Rather it appears to be some kind of status quo bias where the current state of taxation is optimal (by virtue of the fact it is the current state) and any deviations from that are sub-optimal. Which is particularly strange once you consider that the Conservative Party created that status quo.
I know many media-types read Worthwhile Canadian Initiative. I beg of you - please ask Mr. Ignatieff the following question:
If Canada needs more revenue to fight the deficit, why are the Liberals not advocating raising the corporate tax rate above 18%?