Cutting comments over corporate tax cuts

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Corporate tax cuts are shaping up as a potential election issue between the Conservatives on one hand and the Liberals and the NDP on the other. So who is right?

Speaking on Parliament Hill this week, Liberal Leader Michael Ignatieff suggested cutting corporate taxes will hurt Ottawa's bottom line and is not a proven way to create jobs.

"Is it a prudent and good choice for Canada to take corporate tax down when you're in a $56-billion deficit? We're saying these are bad choices." He also said: "Corporate tax cuts don't necessarily create jobs."

Just a few hours later, Finance Minister Jim Flaherty had this to say to the CBC in response to Mr. Ignatieff's comments: "There's a false assumption there which is really dumb - that is, by reducing business taxes, we reduce business tax revenue to the Government of Canada. That's simplistic and, in fact, is wrong. If they look at the tax revenues of the Government of Canada - corporate income tax revenues - they have gone up during the time that we have been reducing the tax burden."

The numbers:

Corporate revenues were up slightly last year from the year before. However, when comparing the most recent revenue numbers to those from two, three and four years ago, corporate revenues are down in each instance. A complicating factor in reviewing the data is assessing the impact of the recession.

YearCorporate tax revenueCorporate tax rate (includes surtax)

2009-2010: $30.4-billion 19 per cent

2008-2009: $29.5-billion 19.5 per cent

2007-2008: $40.6-billion 22.1 per cent

2006-2007: $37.7-billion 22.1 per cent

2005-2006: $31.7-billion 22.1 per cent

Source: Public Accounts of Canada

The latest review:

The Canadian Manufacturers and Exporters (CME) released a detailed report this week investigating some of these very issues. The report concludes that cutting corporate taxes generates significant positive benefits for the Canadian economy.

The report includes findings that run counter to Mr. Ignatieff's claims on jobs and Mr. Flaherty's statements on federal revenues. The conclusions suggest Mr. Flaherty's on more solid ground than the Liberals when making the connection between the cuts and jobs. However, the Finance Minister's claim that it is "dumb" to say corporate tax cuts lead to lower revenue is not supported by the very government figures Mr. Flaherty cites, nor by the CME report.

The Minister's office said Thursday "some degree of caution" is needed in interpreting the revenue numbers because they are influenced by a wide range of factors. The Minister's office also said revenues are projected to rise after the tax rate reaches 15 per cent in 2012.

On jobs, the CME report finds there is a clear historical connection between the after-tax profitability of Canadian business - which the CME links to corporate tax cuts - and the unemployment rate in Canada.

On revenue, the report finds that as a result of corporate tax cuts from 2000 to 2010, Ottawa now collects $16.5-billion less a year in corporate income tax revenue. Even when the CME includes revenue generated from higher GDP as a result of the cuts, the lower tax rate still leads to an annual reduction of $5.9-billion to Ottawa's bottom line. The reduction from the 2010 18-per-cent tax rate to the scheduled 15-per-cent rate in 2012 is estimated by the CME to result in a net loss of between $2.6-billion and $4.3-billion.