03) CAN WE ACCEPT A $172 BILLION REVENUE GAP?
By Kimball Cariou
For the political left, it sounds like a gift from a distant relative; apparently, the next federal election will be fought over the issue of corporate wealth. Stephen Harper and his chest-thumping Tories are ready to go the wall for their right to keep slashing taxes for the benefit of big capital.
What a golden (excuse the pun) opportunity to point out to working class voters that this will keep making the rich richer, at the expense of the rest of us. Even voters who lean to the right may question the Tory "deficit cutting" mantra, since Harper's gang are inflating the deficit by reducing revenues, and ratcheting up spending on boondoggles like the $16 billion fighter-jet purchase.
Ironically, Liberal leader Michael Ignatieff has grabbed the headlines, courageously pledging to resist moves for further corporate tax cuts, down to 15% by next year. Ignatieff refrains from mentioning that it was the Chretien/Martin Liberals who started slashing the federal tax rate on corporate profits, which stood at 29% just over a decade ago.
The NDP's Jack Layton does seem to realize that this issue may resonate with Canadian workers, who remain battered and shell-shocked from the global capitalist crisis. But the NDP has also signalled that they may vote for a Tory budget which includes the next corporate tax cuts. And the Greens, sadly, refuse to sound too critical of big business these days.
That leaves it up to the Communist Party of Canada to ring the alarm. About two dozen Communist candidates will be on the ballot across Canada, campaigning on a platform to restore the former 29% corporate tax rate.
Think what this could mean for the federal treasury. First, here are some figures to help comprehend the scale of the corporate tax rip-off and the blatant transfer of wealth to the rich.
Just eight years ago, net corporate profits in Canada for 2003 reached an all‑time record, topping $102 billion. Over the next three years this figure jumped to $132 billion, then $157 billion, and finally $168 billion in 2006. As Mel Hurtig wrote in The Truth About Canada, corporate profits before taxes were 4.7% of GDP in 1992. By 2006, they hit 13.9% of GDP.
Remember, these figures don't include inflated paycheques for CEOs. For example, Robert Gratton, CEO of Power Corp., received $173.2 million in compensation in 2004, including $169.4 million in profits from stock options.
However, wages in 1992 were 55.2% of GDP. By 2005, they had fallen to only 50.2%. That 5.2% difference represented a decline of $71.3 billion in the share of GDP represented by wages in 2005.
And then things got worse. Heading into the economic crisis of September 2008, profits kept skyrocketing, past the $250 billion mark per year. During the third quarter of 2008 alone, corporations raked in an astounding $77 billion in pre-tax profits.
This profiteering hit a speed bump in 2009, dipping about one-third thanks to the global capitalist meltdown, to slightly below $200 billion - almost double the record set in 2003! Since then, profits have ballooned again, hitting $61.5 billion for the third quarter of 2010. Analysts project that corporate profits may zoom past $300 billion or more within a year or two.
We have no crystal ball to forecast the future, although we can say with certainty that the cycle of booms and busts is built into the fabric of capitalism. It's also clear that the recent global crisis is far from over, considering the ongoing currency wars and the enormous levels of consumer and government debts.
But even if Canadian corporate profits stabilized at about $250 billion over the next five years, consider what the Liberal/Tory tax cuts will mean. The 29% rate advocated by the Communist Party would bring in about $360 billion in total revenue. But the 15% rate set to take effect next year would mean just $188 billion. That's a gap of $172 billion over the lifetime of one majority government - enough to lift millions of Canadians out of poverty, to build homes for everyone, to dramatically upgrade transit systems and cut greenhouse gas emissions, to make post-secondary education and apprenticeship programs free for young Canadians.
There are other ways to calculate the net outcome. Progressive economist Erin Weir notes the Finance Canada estimate that by slashing the federal corporate tax rate from 22% to 15%, the Harper Tories are reducing annual revenues by $14 billion.
The ruling class argues that cutting corporate taxes is "good for the economy". A new 36‑page report released by the Canadian Manufacturers and Exporters says "corporate tax cuts create jobs, boost investment and they make Canada more globally competitive."
But tax cuts to profitable businesses will not necessarily increase investment or jobs. In fact, corporations are driven to invest in labour-saving technology in order to cut costs and boost profits. This explains why millions of Canadian and U.S. workers remain unemployed at a time of world-record profits.
Weir also notes another reason why the tax cuts are ineffective at providing their supposed benefits.
"Much of the revenue forgone by Canadian governments will flow not to enterprises operating in Canada but to foreign governments," says Weir. The U.S. and Japan tax their corporations on a worldwide basis, and U.S.-based businesses account for nearly one‑third of all profits subject to Canada's general corporate tax rate. The net effect of cutting federal and provincial corporate taxes in Canada, explains Weir, is that between $4 billion to $6 billion annually will shift from Canadian governments to the U.S. treasury, and more to Japan. (For a full explanation, read Weir's commentary on the Progressive Economics Forum website.)
Cutting corporate tax rates is good for a handful of wealthy investors, but not for working people. That theme should be driven home on the campaign trail, whenever the election is finally called.
(Kimball Cariou was the Communist candidate in Vancouver Kingsway during the 2006 and 2008 federal elections.)
(The above article is from the Feb. 1-14, 2011, issue of People's Voice, Canada's leading communist newspaper. Articles can be reprinted free if the source is credited. Subscription rates in Canada: $30/year, or $15 low income rate; for U.S. readers - $45 US per year; other overseas readers - $45 US or $50 CDN per year. Send to People's Voice, c/o PV Business Manager, 706 Clark Drive, Vancouver, BC, V5L 3J1.)