No. Services that attract jobs need the revenue
For years the business lobby has been pushing for lower business taxes and, for years, governments of every stripe have delivered.
The federal corporate income tax rate dropped from 21 per cent in 2007 to 15 per cent today; the Ontario general corporate income tax rate has dropped from 14 per cent in 2008 to 11.5 per cent today.
Just this past November, the small business tax rate in Ontario got reduced by another 1 percentage point — an acquiescence to the business lobby’s resistance to a $14 minimum wage.
And yet the province’s business lobby still wants more in what seems like an insatiable quest for lower and lower tax rates. We keep cutting and, for business, it never seems like it’s enough. But how low can we go? The business lobby will always ask for more — that’s the starting position for any negotiation. It will wage public relations campaigns claiming tax cuts create jobs.
Do business tax cuts encourage business investments that create jobs? We can turn to our recent experience for an answer. Economists Jim Stanford and Jordan Brennan did a comparative analysis of economic performance under Stephen Harper’s government, which leaned hard on business tax cuts, and found the promised increases in business investment did not occur. Rather, the prime minister presided over a period of stagnating investment and slow export growth.
Of course, external factors matter. Global economic forces were the main drive of slow economic growth. Lowering corporate taxes proved, once again, to be an ineffective counter to these forces. Not to mention that lower taxes mean fewer resources for governments to invest in areas that directly support economic activity and job creation.
Business investment and location decisions are complex. They take into account other major costs, such as health care. They depend on whether there is an educated workforce available, universities to partner with research, good transportation systems to get your product to market, and whether you can get to your clients and get your staff to and from work.
None of this comes for free. Health care, education, university research, roads and public transit are paid for by the public purse. Tax cuts rob us of the revenue needed to pay for things and they force governments into greater debt. It’s a lose-lose proposition.
In many ways, these discussions about tax rates and competitiveness seem to be a relic of last century thinking. In new economy sectors, liveability and a welcoming environment are important components of investment location decisions. That includes things like green space, affordable housing, safe and wel- coming communities.
All those things require both public funds and adequate government regulations.
Thinking bigger picture, the need to attract an international pool of talent means that an inclusive and welcoming environment is far more important than another tax cut.
Take the U.S., for instance. Under Trump, the business taxes have been reduced at the same time that we are seeing a rise in racism and xenophobia, and an exodus of talent from the U.S. into Canada.
There are 21st century tax problems that need to be addressed, but they are not about a tax race to the bottom. Modernizing tax legislation to prevent the use of tax havens by corporations such as Apple, or our own Canadian corporations, is required to maintain fiscal capacity.
Our tax system needs to catch up to the new economy in other ways, as well. For example, digital services that giants such as Netflix and Amazon sell in Canada are not captured by it. Removing this tax bias would also help support Canadian businesses, workers, communities, and especially our vital media and cultural industries.
Governments need to collect sufficient revenue to pay for the services that we all need. While corporate income taxes are a small share of total revenues — only 11 per cent of all money Ontario raises — they are important to shared sense of contribution and fairness.
It’s time we mature the business tax conversation in Ontario to reflect the realities of today, rather than the ideological mindset of yesteryear.