Low Taxes for Whom? Flaherty’s Rhetorical Retreat

Although last week’s election-provoking federal budget was entitled, “A Low-Tax Plan for Jobs and Growth,” it notably did not address the corporate tax cuts at issue.

Finance Minister Jim Flaherty’s speech began by listing the GST cuts, child-care cheques, Tax-Free Savings Accounts and higher personal tax credits, but never got around to mentioning his government’s deepest and costliest tax cuts. Indeed, he never used the term “corporate tax,” “corporate income tax” or “business tax.”

Of course, the 352-page budget plan had to use those terms in projecting corporate tax revenues and outlining modest but welcome initiatives to extend accelerated depreciation for manufacturing investment and limit the use of partnerships to defer corporate tax payments. However, previous budgets had presented schedules of future corporate tax rates, graphs of Canada’s “marginal effective tax rate,” etc. Budget 2011 did not even try to make a case for falling corporate tax rates.

A couple of months ago, the Conservatives seemed to think that a rock-ribbed defence of corporate tax cuts was a winning strategy. They even organized a road show promoting these cuts. Surely the budget would have been the ideal document to marshal some evidence (if any exists) in support of claims that lower corporate taxes will pay for themselves, prompt investment, create jobs, and make Canada internationally competitive.

Instead, the Conservatives seem to be retreating into general rhetoric about “low taxes” and “securing our economic recovery.” That is probably a wise political strategy given the unpopularity of corporate tax breaks.

The good news is that the right is losing the public debate about corporate taxes. Budget 2011 implicitly conceded what many on the left have long argued: targeted measures linked to actual investment (like accelerated depreciation) are far more compelling than across-the-board giveaways.

If the Conservatives win the election, they undoubtedly will press ahead with corporate tax cuts. However, they cannot win the election by campaigning for lower corporate tax rates.

– Erin Weir is Senior Economist with the International Trade Union Confederation and a CCPA Research Associate.

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