quote:

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On the subject of tax cuts, there are clear choices among the parties. But they've all accepted, to varying degrees, the notion that Canadian taxes are somehow "too high." By international standards, however, Canada is a low-tax jurisdiction - and increasingly so. In 2004, according to the Organization for Economic Cooperation and Development, tax collections by all levels of government absorbed one-third of our GDP. That ranked us 21st out of 30 industrialized nations, and fifth among the seven largest.

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Total Tax Revenue as Percent of GDP

For the so-called G7 (Russia, which makes it G8, is not included in these OECD tables) the percentage of GDP accounted for by tax revenues is as follows"

Canada 33.0%
US 25.4%
France 43.7%
Germany 34.6%
Italy 42.2%
Japan 25.3%
UK 36.1%

Plainly Canada is in the middle of the pack on this one, no where near as high as the over 40% France and Italy, and no where near as low as the 25% US and Japan.

EDITED TO ADD:
Every time I hear the name Jim Stanford, my automatic word association comes up with "Buzz Hargrove". Is that being unkind?

[ 23 December 2005: Message edited by: MasterDebator ]

quote:

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Originally posted by CHCMD:
Ya know, I really don't mind paying my protection money I mean taxes, I just wish gov't would quit pissing it away

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Like buying submarines?

quote:

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Originally posted by CHCMD:
Ya know, I really don't mind paying my protection money I mean taxes, I just wish gov't would quit pissing it away

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I think my point would be a bit different. Yes, we are in the mid-range, the US is very low, despite slightly higher defence spending (Canada spends one and a bit percent, the US over three but less than four). That's partly because health is somewhat more private (about 5% of US GDP is taken up by government spending on health, though a variety of programs), and mostly beacause their GDP per capita is so much higher. So a given level of public services makes up a lower percent of national income.

In particular, I what was I thinking when I let you get away with arguing that corporations can raise prices in response to an increase in taxes in this thread.

If a corp can increase before tax profits after a tax increase, they can do it in the absence of a tax increase. To claim that a tax change will result in an increase in before tax profitability is to assert that the corp is not currently maximising profits.

As far as the argument that capitalists will move their money elsewhere in the face of increased corporate taxation goes, there are (at least) two responses.

First, what is the evidence that there is a shortage of capital in Canada? I would suggest that the recent existence of stock market bubbles suggest the opposite.

quote:

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Originally posted by jrootham:
I still suspect post hoc ergo propter hoc on that argument.

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If the only thing I had was graphs such as these, then I wouldn't be proposing this as a basis for policy. But there's a whole field of study (public finance) devoted to this problem, and there's a pretty broad theoretical consensus on these particular issues, backed by empirical evidence that's much more rigourous than a few scatter plots. [edited to add:] That sounds more dimissive than I meant it to sound. What I mean is that there's a lot more to the argument, and that I'm skipping over the gory details because they require quite a bit of training. I have some references, but they're pretty inpenetrable for non-economists.

quote:

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In particular, I what was I thinking when I let you get away with arguing that corporations can raise prices in response to an increase in taxes in this thread.

If a corp can increase before tax profits after a tax increase, they can do it in the absence of a tax increase. To claim that a tax change will result in an increase in before tax profitability is to assert that the corp is not currently maximising profits.

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If the firm were not able to shift their capital out of Canada, then this would be true. But part of this adjustment would involve the transfer of capital out of the country. As the capital stick went down, its marginal product goes up.

Which brings us to the next point

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As far as the argument that capitalists will move their money elsewhere in the face of increased corporate taxation goes, there are (at least) two responses.

First, what is the evidence that there is a shortage of capital in Canada? I would suggest that the recent existence of stock market bubbles suggest the opposite.

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An increase in the capital stock increases labour productivuty and therefore the demand for labour. Until we've reached the point where all Canadians are happy with their wages and have no desire to ever see another pay increase, we're always going to to welcome more investment.

quote:

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Second, most of the capital used by Canadian corporations is provided by retained earnings. Investments made with retained earnings will be taxed by Canada no matter where the investment takes place.

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A couple of points here:

a) Retained earnings is after taxes. Other things being equal, higher corporate taxes mean less retained earnings and less investment.

b) The high dependence on retained earnings for investment is an artifact of the tax structure: profits distributed as dividends are taxed, but capital gains aren't (at least, they aren't for most). Investors will generally prefer to leave earnings behind the tax wall, if they think they can get tax-free capital gains later on.

c) This arrangement is unhealthy, because it gives CEOs way too much power. All they have to do is come up with projects that generate returns equal to the after-tax market return before stockholders will demand that the profits be distributed as dividends.

d) [ETA:] This leads to games in which everyone focuses on the stock price - which depends on perceptions of current and future profits: perceptions that can be easily manipulated

e) You might be able to hose those who were foolish enough to invest in existing Canadian companies. But Canadian investors - or, for that matter, investors from any other country - aren't obliged to keep investing in Canadian firms.

[ 23 December 2005: Message edited by: Stephen Gordon ]

quote:

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Originally posted by Stephen Gordon:
Well, if we want to emulate what other countries who have managed to have a large govt sector without sacrificing economic growth, we'd be:

a) increasing taxes on labour income,
b) lowering taxes on capital income (by reducing corporate taxes and/or reducing the rates at which dividend income is taxed), and

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Protesting Too Much:
The Rhetoric and Reality
Of Corporate Tax Cuts

· Business leaders and conservative analysts have reacted violently against the deferral
of corporate tax reductions resulting from the Liberal-NDP deal of April 26, claiming
that they will punish the business community and result in lower investment and lost
jobs. These claims are not credible.

· Canadian businesses will still continue to benefit from corporate tax reductions that
will be worth almost $9 billion per year by 2010, including both those that have already been implemented by the Liberals (the rate reduction from 28 to 21 percent) and those which will still be implemented under the Liberal-NDP deal (including the removal of the capital tax, the adjustment in CCA rates, and the elimination of the corporate surtax for small business).

· Corporations have already enjoyed by far the largest effective tax reductions of any
significant federal tax-paying constituency. The effective tax rate paid by corporations fell by almost 5 percentage points between 2000 and 2004 as a result of the large corporate tax cuts which are already in place. In contrast, the reduction in the average effective personal income tax rate during this period was less than 1 percentage point.

· The corporate share in overall federal tax revenue has declined sharply since 2000,
and will continue to decline significantly even under the terms of the Liberal-NDP deal. The corporate share of total tax revenue in 2007 will be 2 points smaller than in 2000. In contrast, personal taxpayers and consumer will shoulder a larger share of the total federal tax burden.

· Ironically, business investment has weakened significantly in Canada since the federal corporate tax reductions – not strengthened. Real business investment has declined by 2 points of GDP since 1999, and the proportion of available after-tax cash flow which firms reinvest in Canadian capital projects has fallen from close to 100 percent in 2001 to just 66 percent in 2004. Business investment spending has weakened despite all-time record corporate profits (which reached 14 percent of GDP in 2004) and a declining tax burden.

· Across-the-board corporate income tax cuts are an extremely weak and ineffective policy tool for stimulating new investment spending. Measures which require new business investment in order to attain a fiscal advantage are much preferable (such as faster CCA write-offs, an investment tax credit, or targeted investment subsidies).

· The claim that the Liberal-NDP deal will significantly dampen investment spending and destroy jobs is not credible. In fact, by replacing far-off and ineffective business
tax cuts with up-front program spending, this accord will clearly create jobs in the near term. The $1.6 billion in additional support for public housing construction alone should create approximately 26,000 person-years of employment in the construction industry.

And I just don't think that past or present governments in Canada are taxing the export of our oil profits like some countries are able to retrieve from their energy exports. And our stumpage fees in the lumber industry are a give away to big, foreign multinationals. We, meaning Canadian's, should be holding the upper hand when it comes to exporting our natural wealth and not the multinationals robbing our country blind over the last 100 years of Liberal and Conservative plutocratic rule.

quote:

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Originally posted by Stephen Gordon:

If the only thing I had was graphs such as these, then I wouldn't be proposing this as a basis for policy. But there's a whole field of study (public finance) devoted to this problem, and there's a pretty broad theoretical consensus on these particular issues, backed by empirical evidence that's much more rigourous than a few scatter plots. [edited to add:] That sounds more dimissive than I meant it to sound. What I mean is that there's a lot more to the argument, and that I'm skipping over the gory details because they require quite a bit of training. I have some references, but they're pretty inpenetrable for non-economists.

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Do any of these impenetrable references talk about anything but adjusting a bunch of dry economic factors?

This is what I hate about most economists, they tell us that if we adjust a tax rate here, an economic indicator there, a productivity index or two tweaked up or down, and there you have it ... the perfect economy.

Does any of your impenetrable economic formula give any clue as to what governments should spend all the increased revenues from a smoking economy?

It may well be that this impenetrable reference material you speak about is really a bunch of economists sitting behind closed doors plugging numbers into a spreadsheet with headings such as public health care, education grant, public housing, senior pensions ... but somehow I have my doubts ... but you can correct me if I'm wrong.

Why can't economists look at what the government spends money on rather than how they use their taxing powers?

Why can't economists not assume that the biggest bottom line is by default the desired outcome?

Why can't they come out with a bunch of options: If you want to have the biggest bottom line use plan A or C; if you want a society where the wealth is most fairly distributed use plan B, D, or E; If you want a society with only a small elite rich ruling class and a large underclass of poor workers use plan E,F, or G?

And don't tell me it's not your job to come up with plans for the economy ... you already have. The problem is you've picked one outcome as preferred and concentrated exclusively on making the arguments fit that plan.

Don't get me wrong, it's not that I don't appreciate that we have an economist to refer to on this forum ... it just get's me so irritated that there seems to be such a bias against recognizing that the economy is suppose to be in the service of people, and not the other way around.

[ 23 December 2005: Message edited by: No Yards ]

quote:

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Originally posted by Stephen Gordon:
Well, if we want to emulate what other countries who have managed to have a large govt sector without sacrificing economic growth, we'd be:

a) increasing taxes on labour income,
b) lowering taxes on capital income (by reducing corporate taxes and/or reducing the rates at which dividend income is taxed), and
c) increasing the GST.

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Well, no one can say that you're not making it totally explicit. Raise taxes on workers and lower taxes on their employers.

1) I'm in favour of improving/expanding our network of social programs.

2) I'd prefer more economic growth to less (and I'd want it to benefit everyone; see point 1).

3) There's no reason why we have to choose between 1) and 2). We can have both. In fact, without 2), it's impossible to sustain 1) for very long.

4) I'm explaining how we can have both 1) and 2).

If I thought that the vast majority of babblers were opposed to points 1) and 2), then I wouldn't bother posting here. But if we can get agreement on points 1) and 2), then all we're really worried about is working out the technical details about how we can get from where we are to where we want to go.

It's these technical details that I'm preoccupied with. There's a general consensus on the theory about the effects of various sorts of taxes on economic growth, and that there's little or no reason to believe that the available evidence contradicts that theoretical consensus. (That's why there's a consensus.) Moreover, we have several concrete examples that suggest that the theory and evidence before us can in fact be used as reliable guides to policy.

The issue is the system.

We have a tax system provides the cadilac of social spending on the wealthy, but is parsimonious in service to the working class, and down right mean with the poor.

I'm not sure I'm in the mood to take tax advice from the CAW.

The CAW, let's remember, was instrumental in lobbying the Liberals for no strings attached coroporate welfare for the Big Three.

Perhaps not a bad deal if it preserved jobs.

But in the same week that Buzz told us the price by selling the CAW's soul on stage with Paul Martin, GM announced plant closures, and hard on those heels, Ford announced intentions to close plants in the future. And the parts supply industry is about to face rabid, anti-worker barganing in the next year.

Tax advice from political patsies who no longer have a clue as to what economic pressures the rank and file are facing?

The economic system that the Liberals and thier fiendish minions in the CAW favour is one where insurance companies, energy companies, professionals and others with near monopolies get to stick their hands in our pockets with no restriction.

Employers squeeze on the wage side, and they gouge on the price side, with no organization out there to protect the interests of the poor and working class.

The CAW is busy lobbying a political party to do things on taxes and pensions and unemployment insurance that this party has had twelve years to reform.

On the surface I'd say that's a testament to stupidity, but when we see how generous the Liberal Party has been to others who have betrayed the interests of those they represent, I'd say stupidity isn't what's going on here.

Wait a while, and ask Senator or Ambassador Buzz next year.

We don't need lobbying, or articles written from the spacious digs of the Executive cottages and Townhouse suites at Port Elgin.

quote:

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Originally posted by Tommy_Paine:
We have a tax system provides the cadilac of social spending on the wealthy, but is parsimonious in service to the working class, and down right mean with the poor.

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hear-hear!

quote:

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But in the same week that Buzz told us the price by selling the CAW's soul on stage with Paul Martin, GM announced plant closures, and hard on those heels, Ford announced intentions to close plants in the future. And the parts supply industry is about to face rabid, anti-worker barganing in the next year.

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In fact, the Yanks have been losing manufacturing jobs at a steady pace over the last 20 or 25 years. Dubya's first term hadn't produced a single manufacturing job across the U.S. during what was the first net job loss economy in the States, which was over a stretch of 36 months or so, since the 1930's.

Manufacturing in Canada was somewhat protected by our relatively low dollar since Mulroney and Chretien signed FTA/NAFTA. So besides the Yanks being able to cart off our natural wealth at rock bottom prices since the 1980's when our dollar dropped down to something like 69 cents USDN, our auto sector has been living a somewhat sheltered existence. In the past, the Auto sector has encouraged Ottawa to maintain EI insurance and worker support programs in order to keep workers from leaving the golden triangle area of S. Ontario during economic downturns. The CAW and UAW have also convinced big three execs that the US needs a form of socialized medicine in order to compete with Japan, Korea, Germany and now China - countries where universal health care has been in place for decades.

I think that as our dollar rises against the US greenback, the writing is on the wall for our auto industry. Flexible labour markets are the right's battle cry, including our weak-kneed Liberal party without a soul or platform that differs to any real degree from the CPC's big business, anti-worker agenda.

Edited to add:

I think something else that's overlooked when talking about how the west has hemoraged manufacturing jobs over the last couple of decades is that the Asian countries have been beating our brains in with socialist manouvering wrt making cars. The west has always feared Japan, Korea etc would tend towards socialism. Japan was given MFN status after WWII because of that, and their CEO's and captain's of industry thnk a little differently than our fat cats on Wall and Bay Streets do. Japanese corporations will often pull out all the stops in keeping their companies competitive, which includes accepting lower profit margins and stockholder dividends than our big wigs are willing to before packing up their marbles and shipping our jobs over there. Asian corporations will operate at lower profit marins, at cost or even at a loss if need be before slashing jobs and wringing all they can from workers while our guys tend to want to prop-up blue chip shareholders, over-bloated CEO/CFO and upper management salaries first and foremost. Wall Street and Bay Street boys dislike the Asians for this because it's not good for predatory capitalism. Instead, our way is to maintain fat at the top while slashing jobs at the bottom and squeeze more work from fewer workers, wage and benefit concessions, pension contribution holidays for corporations. Workers morale drops as they work more over-time for less pay, workplace accidents go up. This continues for some time, and eventually, the jobs and manufacturing jobs take exodus for greener pastures or simply disappear altogether while some small group of company execs and shareholders retire to their drawbridge communities in Florida or California and workers here can say bye-bye to jobs and pension plans. The CEO's and fat cats usually put the millions of dollar mansions and bank accounts in their wives names to avoid worker's justice.

The typical Asian CEO would rather die or step down from his position than be viewed as betraying workers. For example, an incident like Union Carbide's Bhopal disaster would have been grounds for an Asian CEO to resign after apologizing extensively to the people affected. Our guys just wouldn't do something like that. In fact, they didn't. There is no honour amongst thieves, so to speak. The bastards will sell our workers down the river and think nothing of it.

[ 24 December 2005: Message edited by: Fidel ]

quote:

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Originally posted by Stephen Gordon:
I thought my position was pretty clear, but I'll repeat it:

1) I'm in favour of improving/expanding our network of social programs.

2) I'd prefer more economic growth to less (and I'd want it to benefit everyone; see point 1).

3) There's no reason why we have to choose between 1) and 2). We can have both. In fact, without 2), it's impossible to sustain 1) for very long.

4) I'm explaining how we can have both 1) and 2).

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The first time I heard this argument, that good public goods and services provision relies on a strong economy, it was being articulated (if that is the correct word) by former British Columbia Premier William R. Bennett in 1975. So it's really not new. It's also close to tautological.