An updated history of the federal budget balance

I did a round of interviews for CBC radio on Tuesday after the federal government's fiscal update was released, and it was often remarked that the 2009-10 deficit of $55.6b was the largest ever. I suppose I should have said that it sounds even larger if you say it was 5.56 trillion cents.

These numbers aren't really informative without context, so here's some. The data are taken from the Department of Finance's Fiscal Reference Tables, also updated on Tuesday:

First up is the federal budget balance, scaled as a share of GDP and in terms of per capita 2010 dollars:

The 2009-10 number is bad, but we've seen worse. Indeed, we had a string of 18 years in a row starting in 1977 where the deficit was a larger share of GDP than it was last year.

Here is the federal debt:

That upward tick will be something to watch in the next couple of years. A temporary blip is nothing to worry about. A sustained trend is.

I've found it instructive to look at spending and revenues using both methods of scaling the data.

After almost 30 years of drifting sideways, real per-capita spending jumped sharply. The stimulus program is set to expire in 2011, so the spending should stay in that region before falling back again (how far?) in 2011-12. Unsurprisingly, revenues fell during the recession, but they've already started coming back.

Here are the same series expressed as a share of GDP:

Once again, we see that jump in spending, but only back up to levels we saw twenty years ago.

I have to say that I can't get too excited by the swings at the end of those graphs, even if they do persist through the current fiscal year. On both the revenue and spending sides, the shifts are temporary and will recede during FY 2011-12. There's a better-than-even chance that the deficit will not go entirely away on its own and that further measures will need to be taken, but these decisions don't have to be made right away.

Comments

[Nick Rowe]

Agreed. And isn't that last $5.6b some sort of accounting thingy, due to HST?

I think we should be worrying more about Bill Robson's (CD Howe) projection of $2.8trillion extra spending from the interaction of demographics and healthcare. http://www.cdhowe.org/pdf/eBrief_106_Robson.pdf

[Just visiting from Macleans]

Q: Tax cutting in the last decade. Where does it show up in these graphs, and how would one measure if it was effective? Or can one measure it in these graphs? Is it reflected in the declining revenue as pct of GDP in the last graph, and what about the 4 x multiplier for corporate tax cuts that MM referenced in an earlier Finance study (c 2004)? Shouldn't the multiplier tend to flatten the red line, or is the downward slope mostly the effect of GST cuts?

[Patrick]

Nick makes an good point. The demographic that is going to benefit most from that $2.8T is also the largest demographic and the one that votes. I think it's pretty unlikely that they'll decide to spend less on themselves, and any politician who suggests it will be committing career suicide.

[Nick Rowe]

Patrick: until the boomers slowly die off, and lose their voting clout. And then the late boomers will probably get the short end of the stick, yet again.

[Mike Moffatt]

JvfM: I assume you're talking about the Conservative tax cut to the corp. income tax rate (and not earlier ones?)

21% before January 1, 2008
19.5% effective January 1, 2008
19% effective January 1, 2009
18% effective January 1, 2010
16.5% effective January 1, 2011
15% effective January 1, 2012

At absolute worst, all else being equal, a 10% reduction in rates (say from 20 to 18%) would lead to a 10% reduction in revenue collected (in reality, it will be a smaller reduction, for all the ECON 1000 reasons). Corporate income tax revenue total is 30-40B a year, so we're talking about a reduction in 3-4B in revenue collected. Of course, not all else is equal, so the economy is growing (or shrinking), so corp. income tax revenue is changing due to that.

Canadian GDP is around is around 1200B a year. You'd need one heck of a multiplier to see the effects of a 4B tax cut in a 1200B economy by just looking at the raw data.

[Tuzanor]

The federal Liberals did some fairly substantial income tax cuts during their tenure as well. However, revenue seems to have continued to increase as the economy was expanding during those times.

[Robert McClelland]

Why don't you have a chart of the deficit as a percentage of jellybeans in Canada? It would be just as meaningful to this discussion as your other ones. There is only one measure that matters; the deficit as a percentage of government revenue. Every other comparison is econononsense.

[Christopher Hylarides]

Robert,

Debt and revenue as a percentage of jellybeans would not show how capable we are of carrying the debt, but against our economy it does and per capita it does.

If government revenue was only $100 total and was spending $150, your graph would show the same data as the gov't collecting $100B and spending $150B. How useful is that? It wouldn't show past information on whether balances were won via spending cuts or tax increases, as well. Now who's spouting econononsense?

[Just visiting from Macleans]

MM, I was under the impression corp tax cuts were also undertaken prior to 2008 by Chretien/Martin gov'ts, no?

The problem I have is your earlier suggestion in another blog (agreed to by SG) that to determine optimal CIT you cut and then re-evaluate where you're at. But, how do you do that? And how do you account for favourable terms of trade due to higher commodity prices? I'll have to look at his more recent blog posting a bit closer. My initial thought is that reporting numbers as a % of GDP hides some of the subtleties of tax policy.

[Mike Moffatt]

"MM, I was under the impression corp tax cuts were also undertaken prior to 2008 by Chretien/Martin gov'ts, no?"

Yep, which is why I had to ask which ones you meant.

"The problem I have is your earlier suggestion in another blog (agreed to by SG) that to determine optimal CIT you cut and then re-evaluate where you're at. But, how do you do that?"

You have to account for those other factors - start parsing things out. You're not going to just look at the raw data.

[Just visiting from Macleans]

But, you would agree however, pre-parsing, that with significantly rising commodity prices over the past decade that you MAY have ended up giving up more than you gained through CIT cuts? Hindsight being 20/20.

[Robert McClelland]

Debt and revenue as a percentage of jellybeans would not show how capable we are of carrying the debt, but against our economy it does and per capita it does.

No it doesn't, as a percentage of revenue does that. Lets look at two examples.

1) Deficit of 50% of revenue and 1% of GDP.
2) Deficit of 10% of revenue and 5% of GDP.

Which would you prefer?

[Mike Moffatt]

"But, you would agree however, pre-parsing, that with significantly rising commodity prices over the past decade that you MAY have ended up giving up more than you gained through CIT cuts?"

I'm not sure what, exactly, you mean by 'giving up more than you gained', but naturally I wouldn't rule anything out a priori. But I'd need to see your model. What's your reasoning? How do these things interact? What are the underlying assumptions?

[Just visiting from Macleans]

Well, my basic model is that when you cut CIT - your main objective is to promote/encourage more local investment (and presumably more employment - but not necessarily so if investment is in productivity related equipment). The 4x multiplier, I presume, was claiming that a $1 tax cut results in $4 more tax revenue, no?

But, there will be free riders - those that will invest irrespective of the CIT cuts. And in resource based economies, these things can't move (primary extraction and related investment). Secondary and tertiary industries less so, but more dependent upon other factors.

If the CIT revenue given up to the free riders exceeds the value of the 4x multiplier, then you're worse off, tax revenue wise, no?

[Mike Moffatt]

"Well, my basic model is that when you cut CIT - your main objective is to promote/encourage more local investment (and presumably more employment - but not necessarily so if investment is in productivity related equipment). The 4x multiplier, I presume, was claiming that a $1 tax cut results in $4 more tax revenue, no?"

Whoah.. no.. nobody is making a Laffer curve argument here.

It wasn't a multiplier. The point of the study is that collecting an extra dollar of taxes through a corporate income tax is more damaging to the economy than collecting an extra dollar from a sales tax (or conversely, collecting one less dollar of corporate income taxes leads to a great economic benefit than cutting one less dollar of sales tax).

[Just visiting from Macleans]

Ok, so I misunderstood the 4x multiplier. Still don't know why it was called that, then, if it was.

But, what about the example I provided? Is it possible that less overall tax was collected due to the CIT cuts, looking back with hindsight over the past decade?

[Mike Moffatt]

"Is it possible that less overall tax was collected due to the CIT cut"

Relative to what? If there hadn't been a cut? Almost certainly. Again, I don't know of any researcher in Canada who has made the claim that corporate income tax cuts are self-financing.

[Just visiting from Macleans]

Relative to what? If there hadn't been a cut? Almost certainly.

OK, so, give me a 140 character explanation of why it is essential in 2010 to continue on cutting as per your schedule outlined earlier, 2008-2012. Or is the whole CIT cut argument based solely upon tax shifting? Sorry, I'm a bit thick sometimes.

[Mike Moffatt]

"OK, so, give me a 140 character explanation of why it is essential in 2010 to continue on cutting as per your schedule outlined earlier, 2008-2012. Or is the whole CIT cut argument based solely upon tax shifting?"

The case made by the paper (and dozens of other studies like it) is largely that if you raise taxes, raising that tax will provide the greatest damage to the economy. If you lower taxes, lowering that tax will provide the greatest economic benefit. Of course, that leads to the idea of a tax shift, as you describe, that you could raise one (say the GST), lower corporate taxes, and come out economically ahead.

[Just visiting from Macleans]

OK, but given that CIT tax cuts are not self financing, if they are applied without an offsetting tax hike (GST for example) does this not make the deficit worse?

[Mike Moffatt]

"OK, but given that CIT tax cuts are not self financing, if they are applied without an offsetting tax hike (GST for example) does this not make the deficit worse?"

If you assume they're not self financing (which they probably aren't), then yes, by definition.

[Just visiting from Macleans]

So, if "they probably aren't", can you definitively state that cutting CIT without a GST hike is better than not cutting CIT and leaving GST also unchanged?

[Mike Brock]

What happens when you aggregate the provincial balance sheets together? I believe the total government debt-to-GDP ratio in Canada, including all levels of government, is something approaching 90%. Remember, Ontario has a provincial deficit that is almost as large -- in nominal -- terms as the Federal deficit

[Just visiting from Macleans]

MM, you still there? Why no reply? You were previously so punctual. Let me know when the paint dries and you can come out of the corner. :)

[Roland]

But don't forget that during the 1980's our high interest rates on the debt were in turn worsening the annual deficits.

Today, we have record low interest rates, and our deficits are still big.

And then we have all those future unfunded payments to make, assuming we don't simply renege on them. More likely, of course, we'll simply inflate while rigging the CPI numbers, as we've already begun to do.

We actually blew it in the 1990's. There should never have been any tax cuts. We should have run bigger supluses and paid down more debt. But people only seem to be Keynesian in the bad part of a cycle.

[Mike Moffatt]

"So, if "they probably aren't", can you definitively state that cutting CIT without a GST hike is better than not cutting CIT and leaving GST also unchanged?"

Better on what dimension? Not sure what you're getting at.

[Just visiting from Macleans]

Next election will have CPC, which cut dumbest tax to cut (GST) vs LPC, which wants to increase dumbest tax to raise (corp taxes)? What fun!...Can't anyone play this game? If you want to cut taxes, cut corp taxes first. If you want to increase revenues, increase GST first.

Which is better? Or less worse? In your opinion? Where we are today. 2010.

Cut corporate taxes (Conservative party) or not cut corporate taxes (Liberal party) - both leaving GST as is?
.
.

aside- did you happen to see this story from Wed's G&M -
An innovative strategy for Canada

http://www.theglobeandmail.com/report-on-business/economy/growth/an-innovative-strategy-for-canada/article1754203/

No talk of corporate tax cuts - but rather targeted tax credits for R&D

[Patrick]

Nick: Maybe. Though I suspect it'll be today's two year olds who will get the short end of the stick in the form of underfunded everything-that-isn't-health-care.

BTW, population pyramids are here:

http://www.statcan.gc.ca/kits-trousses/animat/edu06a_0000-eng.htm

[K]

Mike Moffatt: I know of many papers that argue/demonstrate empirically that CIT is inefficient and falls principally on labour in an open economy. But states compete on CIT and the world is a closed economy. So while any one state may get a significant temporary advantage and efficiency gain through a cut, over the long term the only outcome is a global drop in CIT and a resulting shift in burden from capital to labour. As to the optimal mix of tax burden between capital and labour in a closed economy, that depends on their relative marginal returns on investment. But the answer is certainly not 100% on labour and 0% on capital which will be the ultimate result of tax competition in a world of perfect capital mobility and zero labour mobility. This is a classic prisoner's dilemma.

[Mike Moffatt]

"Next election will have CPC, which cut dumbest tax to cut (GST) vs LPC, which wants to increase dumbest tax to raise (corp taxes)? What fun!...Can't anyone play this game? If you want to cut taxes, cut corp taxes first. If you want to increase revenues, increase GST first.

Which is better? Or less worse? In your opinion? Where we are today. 2010.

Cut corporate taxes (Conservative party) or not cut corporate taxes (Liberal party) - both leaving GST as is?"

Can you clarify what you mean here - you're quoting cutting the GST, then leaving it in tact. Am I judging a GST cut, a non-GST cut. What, exactly?

And I'm still not sure what you mean by better. Better on what dimension? Better for what? The economy? Government revenues?

Sorry if this seems dense, but I've read the above about 10 times and I'm still not sure, what, exactly you're asking. I need something more specific.

[Bob Smith]

K:

What you described is the impact of corporate tax in a SMALL open economy (like Canada)which can't affect the global return on capital. Keep in mind that the incidence of corporate income tax is different in a LARGE open economy (say, the US), because capital can't move out of those jurisdictions without driving down the global price of capital. That means that, in a large open economy, at least some of the incidence of corporate income tax is shifted to foreign owners of capital (which is probably why, for example, the US has one of the highest statutory and effective corporate income tax rates in the developed world - they are able to tax foreigners who don't get a vote).

In any event, the suggestion that moving to a zero-rate on corporate income tax would mean shifting taxes from capital to labour is not correct. As you correctly noted, in small open economies, the bulk of the incidence of corporate income tax is already borne by labour, so reducing the statutory tax rate doesn't change that (although it that make that point more transparent).

[Just visiting from Macleans]

The two main political parties in Canada differ on one fundamental point. Both the Conservatives and the Liberals will neither raise nor lower the GST.

But, the Conservatives will continue on with CIT cuts. The Liberals won't at this time- claiming the economy needs more time to recover/balance the books.

From what you told me earlier, the Conservative's CIT cuts in all likelihood will ADD to the deficit, they being non self financing.

I find the Liberal position entirely defensible at this time, especially if they focus on targeted R&D tax credits instead of across the board CIT cuts - the latter having been demonstrated over the past decade as being ineffective in promoting productivity investments in Canada. So, the better or least worse platform. Do you agree? If not, why not?

[Bob Smith]

So, if "they probably aren't", can you definitively state that cutting CIT without a GST hike is better than not cutting CIT and leaving GST also unchanged?

Better how? Cutting the CIT has some benefits, not cutting it and using the additional revenue for some other purpose presumably has benefits as well. How you weight those benefits is, presumably, a political question and depends on your preferences and the alternatives being presented.

I think if you're going to ask Mike if cutting the CIT is "better" you really have to propose an alternative against which to compare it and a basis on which to assess "better-ness".

[Just visiting from Macleans]

Hey, did you just get back from vacation? :)

OK - across the board CIT cuts vs. targeted R&D tax credits to promote productivity/foster innovation.

[Bob Smith]

Just, if the choice is between a CIT cut and R&D tax credits, than I would definitely choose the CIT cut. Canada already has a ridiculously generous R&D tax credit system, which system has been singularly ineffective at promoting productivity growth (not surprisingly, because most of the R&D money goes to 1% of all Canadian businesses, and 100 Canadian companies collect 56% of it). Far better to provide a more favourable business environment for all businesses than to continue to toss money than the R&D tax credit well.

As an aside, the single most effective tax policy to improve productivity is one that the Tories have already implemented, namely helping to get rid of provincial sales taxes.

[Just visiting from Macleans]

OK, so I presume you agree with the findings in the earlier linked article - Innovation strategy for Canada - which argues a reallocation of existing funding.

Several of the key recommendations centre on getting more out of Ottawa’s popular $3-billion-a-year Scientific Research and Experimental Development (SRED) tax credit – its costliest R&D program. The coalition wants Ottawa to make the credit available to public companies, expand eligible innovation-related expenses, and give refundable credits to companies that hire R&D workers. To make the changes “fiscally neutral,” Ottawa could lower the credit cap, now set at 35 per cent, according to the coalition.

Currently, companies that go public are ineligible. And credits can only be used to offset profits, making it of marginal value to thousands of money-losing startups with good ideas.

What about this trade-off - CIT cuts (which adds to the deficit) vs balancing the books sooner, then cutting?

[Mike Moffatt]

"What about this trade-off - CIT cuts (which adds to the deficit) vs balancing the books sooner, then cutting?"

Obviously there's a tradeoff there, but if the government is looking for ways to balance the books sooner, there are a lot more effective ways of doing so (such as, a rise in the GST).

"OK - across the board CIT cuts vs. targeted R&D tax credits to promote productivity/foster innovation."

With any 'targeted' plan, the devil is in the details - hard to make a broad generalization.

[Mike Moffatt]

"But, the Conservatives will continue on with CIT cuts. The Liberals won't at this time- claiming the economy needs more time to recover/balance the books.

I find the Liberal position entirely defensible at this time, especially if they focus on targeted R&D tax credits instead of across the board CIT cuts - the latter having been demonstrated over the past decade as being ineffective in promoting productivity investments in Canada. So, the better or least worse platform. Do you agree? If not, why not?"

Your questions are self-contradictory Dot. First we're talking about doing nothing to 'recover/balance the books', then we're talking about 'focus on targeted R&D tax credits', which presumably is going to cost money.

I'd be happy to answer your questions, but you're all over the place here, so I don't know what you want me to answer.

[Just visiting from Macleans]

Obviously there's a tradeoff there, but if the government is looking for ways to balance the books sooner, there are a lot more effective ways of doing so (such as, a rise in the GST)

Aha. But I made not raising GST a priori (a safe assumption in the current political climate).

Anyway, what I can conclude is that either political platform has its tradeoffs - and neither is definitively better or worse than the other. Fair conclusion?

[Mike Moffatt]

"Anyway, what I can conclude is that either political platform has its tradeoffs - and neither is definitively better or worse than the other. Fair conclusion?"

No idea, because I still don't know what these platforms are.

[Just visiting from Macleans]

No idea, because I still don't know what these platforms are.

So doggedly advocating CIT cuts, in the absence of a full platform, is premature. In your opinion. Fair?

[Mike Moffatt]

"So doggedly advocating CIT cuts, in the absence of a full platform, is premature. In your opinion. Fair?"

No - not at all. I'm trying to understand your question.

[Just visiting from Macleans]

This is like trying to nail jello to a wall. I'll move on. :)

[Mike Moffatt]

"This is like trying to nail jello to a wall. I'll move on. :)"

Please do. I can't follow what you're asking - it's different in every single text. Sometimes there's R&D tax credits, sometimes there's not. Sometimes there's two 'platforms' to compare to each other, sometimes there's a lone tax cut to consider. It's making me dizzy.

[Just visiting from Macleans]

If you find this complex, then you should indeed lie down for a spell.

[Mike Moffatt]

This whole thing reminds me of this:

Barlow: Mayor Quimby, you're well-known, sir, for your lenient stance on
crime. But suppose for a second that _your_ house was ransacked
by thugs, _your_ family tied up in the basement with socks in
their mouths, you try to open the door but there's too much
_blood_ on the knob --

Quimby: What is your question?

Barlow: My question is about the budget, sir.

[Bob Smith]

"Anyway, what I can conclude is that either political platform has its tradeoffs - and neither is definitively better or worse than the other. Fair conclusion?"

If the contrast is between cutting the CIT and implementing additional R&D tax credits, the former is unambiguously better than the latter. No question about it.

If it's between cutting the CIT and spending the savings on other program spending (which is what the Liberals have been suggesting recently - i.e., old age care), than, yes, it's hard to say that one is unambiguosly better than the other, because the assessment of the merits of the alternatives are really subjective).

[Just visiting from Macleans]

Some people also feel that adherents of purely economic theory is comical.

[Mike Moffatt]

"Some people also feel that adherents of purely economic theory is comical."

Even if this were just theory, that'd be unfair. But it's not just theory - we have posted applied studies using historical observations and data.

[Just visiting from Macleans]

I'd probably get a 2 in your course that you teach part time. Case studies, that often use real data and external info to complement theory, never have a definitive right or wrong answer - despite what some instructors like to claim. Kinda like Canada's economy in 2010.

[Mike Moffatt]

"I'd probably get a 2 in your course that you teach part time. Case studies, that often use real data and external info to complement theory, never have a definitive right or wrong answer - despite what some instructors like to claim. Kinda like Canada's economy in 2010."

I suppose that's fair and I'd never make any claim about economics with absolute metaphysical certainty. (I'm familiar enough with Immanuel Kant not to make that mistake).

But at the same time, I don't think we have to throw up our hands and say 'since we can't be absolutely sure about anything, then everything is equal!' There's a middle ground here.

[K]

Bob Smith: "the suggestion that moving to a zero-rate on corporate income tax would mean shifting taxes from capital to labour is not correct"

Globally, it is exactly correct, except I should have said labour and other tax payers, which is mostly the same thing.  Consider a world with 2 jurisdictions, one with a 20% and one with a 21% CIT.  This will be equivalent globally, to an effective CIT rate somewhere between the two levels.  The incidence of this effective rate is largely on capital, not labour. (This is not a controversial statement about closed economies).  If both jurisdictions shift their CIT up by 1%, the burden of that will be almost entirely on capital.  It is the tax differential whose principal incidence is on labour, largely because of capital movements.  If the higher tax jurisdiction cuts its tax to 20% there will be two effects: 1) the effective global CIT will decrease, increasing the burden on labour everywhere and 2) capital will flow into that jurisdiction, more than reversing the impact on domestic labour.  The second effect is the well known effect documented by the "dozens" of studies that Mike Moffatt mentions.  What is often not mentioned is that the benefit is entirely paid for by foreign labour (and then some). 

When jurisdictions compete on CIT, the effect is a lowering of the effective global rate and a global transfer in burden from capital to other tax payers (principally labour).  It is entirely disingenuous to go around pretending (as many of these studies do), that the incidence of CIT is on labour, and that cuts in CIT are somehow progressive, when it is obvious that in a global economy, they are merely predatory on foreign labour.  What's even worse, because of the prisoner's dilemma nature of the game, the end result of extremely low CIT is not even efficient.

[Bob Smith]

K,

K,

I'm happy to concede that if there was global coordination of tax rates, then yes, the incidence of CIT would be borne (to some degree, though not entirely) by owners of capital. We would, in essence, be one big closed economy.

But, of course, that isn't the world we live in. Most countries are small open economies, and therefore the incidence of CIT in those countries is largely borne by labour (it's different for the handful of large open economies like the US - to some degree the incidence of capital tax in those countries is borne by owners of capital around the world, which I suggest is probably why US corporate tax rates are so high). Given that this is the world we live in, reducing the CIT rate in Canada doesn't shift tax from capital to labour, regardless of what other countries do.

Moreover, it doesn't follow that an extremely low CIT rate is inefficient or leads to inefficient levels of taxation on capital income. After all, CIT isn't the only tool at a government's disposal for taxing capital. It is just one method of doing so, by taxing capital income at the corporate level rather than doing it at the shareholder level. Incidentally, that is precisely what has been happening in Canada. As CIT rates have gone down, the effective income tax rate on dividends (at least dividends from Canadian corporations received by Canadian residents) has gone steadily up as the dividend tax credit has been reduced to reflect the lower CIT rates (there is some net tax loss to the Fisc, however, as non-residents and non-taxables such as RRSPs and pension plans aren't affected by this change - though non-residents are caught by withholding taxes and much of the income of non-taxables is ultimately taxed down the road, so that's really a deferral issue).

Indeed, the fact that Canada (and other developed countries) does not impose entity level tax on other business entities (partnerships and, in some circumstances, trusts - though that's changing as of January 1) belies the claim that having no CIT results in inefficiently low levels of tax on capital.

[Bob Smith]

Just to follow-up on my last post, by imposing higher capital taxes at the shareholder level, Canada doesn't face the same mobility issue, because the tax is imposed where shareholders live, not where they invest (as is the case with CIT). Of course, in theory shareholders can up and move to lower tax jurisdictions, but most shareholders (like workers) find it harder to move themselves than their investments.

[K]

Bob Smith,

You don't need coordination for the global effective CIT to be borne by capital. It's not about changes in the CIT. It's about the effective global rate which, again, is a rate somewhere in between the lowest and highest rates. And the incidence of this rate is almost entirely on the owners of capital. Period. And no, coordination wouldn't make the world a big closed economy - we already are one.

Imagine that I said in this forum that a seller in a market should just lower his price by 10% since his loss of income would be outweighed by a huge gain in sales volume. Everyone would (rightfully) call me an idiot and point out that unless I had a production advantage, my price cut would simply be matched by other sellers, and we would all lose income. Similarly, if Canada cuts its CIT our global competitors will be forced to match relatively quickly, and when they do so, we will all have lost. I am not saying that we can avoid this process; I am saying that it's really bad for us.

I never said that it followed from any of this that a low CIT was inefficient. I said that for other reasons 0 CIT is likely to be dominated by a mix of CIT and other taxes. I also said that because we are in a prisoner's dilemma in which it is rational for individual nations to try to undercut the effective global CIT rate, irrespective of whether the current rate is optimal, then there is no lower bound to this process. Prisoner's dilemma does not have an efficient equilibrium.

In the end, the gains you are touting for CIT cuts will be temporary until other jurisdictions match the cut, and for the average jurisdiction, will be offset by periods in which it finds itself at the losing end of the CIT differential. And in the end we will end up at a regressive and grossly inefficient global average CIT rate.

Anyways, I'm getting tired of beating this horse, which should have been dead long ago. Maybe someone else can take it up, or someone who is really hearing what I'm saying can explain to me how I'm wrong. Otherwise, I'm over and out.

[K]

Whoa, that was an intemperate late night comment. I take back the attitude. Sorry Bob, and everyone else.