Corporate Tax Cuts: Big Costs but No Job Creation

Today the CCPA released a study that I authored which examines and debunks one of the biggest contentions of this campaign, that corporate tax cuts create jobs.  One of the key reasons cited by the Conservatives for continued corporate tax cuts is that they are needed to encourage job growth.

To examine this contention, I took Canada’s biggest public companies, those on the S&P/TSX Composite and tracked them over the past decade to see how their taxes and profits changed.  At the same time, I also tracked how many employees they had and therefore the number of jobs they created.  These are the companies that benefit the most from corporate tax cuts because they declare the largest profits.

There were 198 companies that had data from 2000 through 2009.  What readers should find shocking is just how dramatic the transformation in corporate taxation has been in the past decade.  The effective tax rate for these successful companies has been cut in half.  Imagine if, as an individual, your personal income taxes had been cut in half over the past decade. Well, that’s what happened in corporate Canada.

With such a dramatic change, it should be no surprise that, compared to 2000, profits are up 50% while taxes paid are down 20%.  The tab for corporate tax cuts for just these 200 companies is $12 billion a year in lost provincial and federal revenues.  To give readers a sense of scale, that much money could buy us a national $10/day childcare program and wipe out poverty among seniors with money left over.

Canadian governments have given our most profitable corporations dramatic tax cuts and promised job creation in return. We’ve cut the cheque, worth $12 billion a year in 2009, but did we get the jobs?

The Canadian economy as a whole has increased the number of jobs by 6% since 2005.  However, the 200 companies that are receiving the $12 billion a year tax break have only increased their job numbers by 5%. In effect they are pulling down the average.

Instead of creating jobs with those billions, they have merely increased their profits or are sitting on the cash.  Canadians should expect vastly more for $12 billion a year.

5 comments

  1. I may be wrong but what if I told you i employ 1 million people in my corporation and I increase jobs by 5% thats 50,000 new jobs. while another corporation has increased jobs by 10%( a corporation not on the TSX) but they until today only employed 100,000 people. They only created 10,000 jobs. in effect I created more jobs but am a lower percentage because of the high number of people I already employ.

    Does that make sense?
    Just a thought

  2. Stav,
    That may be true, although I can’t say based on the figures in the study. If it is true that smaller businesses find it easier to create jobs, maybe what we need is a program to encourage that. It would be far far cheaper than tax cuts to large companies and might lead to more job growth.

  3. Hi David,

    In December 2008, the Centre for the Study of Living Standards (http://www.csls.ca) released a report titled “The Relationship Between Labour Productivity and Real Wage Growth in Canada and OECD Countries” (a PDF version is available online at http://www.csls.ca/reports/csls2008-8.pdf). The report’s conclusion is that real wages (wages adjusted for the cost of living) have remained stagnant between the years of 1980 and 2005 (the period of time that the study documented) while, during the same period, worker productivity rose by 37%.

    I’d like to know how this correlates with your study “Corporate Income Taxes, Profit, and Employment Performance of Canada’s Largest Companies.” In your conclusion, you state that corporations “are making 50% more in profit while paying 20% less in income tax.” If the CSLS study is correct, then I’d argue that corporate profits are substantially MORE than this. By not paying workers a wage that is consistently higher than the cost of living and yet still earn the gains of greater worker productivity, corporations can pocket this difference as profit. When this is factored into the falling corporate tax rate, the disparity between rich and poor becomes even more pronounced, especially when governments at both the federal, provincial, and municipal level “cry poor” and begin to cut social services.

    If true, this would seem to me to be a critical point for discussion and debate during this federal election, the upcoming provincial election in Ontario, and a matter of great concern for our democracy over the next number of years.

  4. Von,
    Thanks for the comment.

    The profit figure I have compiled would include any additional profit due to wages not rising quickly or even money saved by laying people off. Although my study doesn’t look at what effect stagnant wages would have on profit, there is clearly going to be a higher profit for companies if they can squeeze wages while still managing to get the same amount of work out of workers.

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