Business tax cuts don’t spur more capital spending, study shows

[OntarioVanMan]

Business tax cuts don

The decline came despite continuing business tax cuts that have slashed the combined corporate federal-provincial corporate rate from 50 per cent in the 1980s to 29.5 per cent in 2010, according to the study, which The Star obtained and the centre will release this morning.

During the election campaign, the Conservatives have renewed their promise to reduce the federal corporate tax rate to 15 per cent in 2012 from 16.5 per cent this year and 18 per cent in 2010. They argue corporate tax cuts will boost job creation and competitiveness.

But the study’s conclusions sharply contradict the Conservatives’ view on the impact of tax cuts.

It revealed that before tax reforms in 1987, fixed capital spending as a percentage of GDP stood at 12.7 per cent. Since then, the rate reductions have not increased investments and actually pulled them down to 11.7 per cent of GDP.

But in the same period, after-tax cash flow climbed. As a result, the study said that as a share of available cash flow, the fall of investment spending is even more dramatic.

 

[jpalmer]

People are not spending what they are saving in Taxes because of high gas prices and the uncertainty caused by the policies of the Obama Administration.

I've made a lot of business decisions in the last 2 years based on not knowing what the economy is going to do. I've accepted that we are going to see another good sized dip.

The next 3-4 months economic reports are going to be down on manufacturing and retail. Because of the high gas prices. Unemployment is going to dip further into the 10% range.

I got a part time job for a reason. Cause this time I can clearly see what is going to happen.

Oil prices dropped from 112 a barrel to 105 a barrel based on Goldman Sachs reporting they hit their highs for the year, supply is good and the high prices are now going to have an effect on the economy.

 

[chefdennis]

from the article:

Stanford, economist for the Canadian Auto Workers union,

The author of the research.....

 

[OntarioVanMan]

from the article:



The author of the research.....

I seen that Dennis...good pick up....*lol*

do ya think just a tad biased?

 

[chefdennis]

What is the old saying..."figures lie and liars figure"....

 

[layoutshooter]

Business is unsure about what is going on. Obama seems to change direction with every pole that comes out. They cannot depend on him.

Congress is running around unable to do their job.

No one can count on ANY particular tax rate remaining in force for any reasonable length of time.

There is an election next year.

Anyone wonder why business is concerned?

 

[Ragman]

Business is unsure about what is going on. Obama seems to change direction with every POLL that comes out.

1. Now I know what change he was taking about!

2. Fixed it for ya.

 

[layoutshooter]

1. Now I know what change he was taking about!

2. Fixed it for ya.

Sure glad I got a "proofreader" in here!!

 

[cheri1122]

I seen that Dennis...good pick up....*lol*

do ya think just a tad biased?

Do you think that the Canadian Centre for Policy Alternatives [for whom the study was done] is gathering information reflecting just one side of the idealogical battles over the budget?
I don't, because they are a NONPARTISAN research agency, meaning they collect info from all sides, not just what suits their agenda.
Biased is when you dismiss what doesn't agree with what you've already decided to think.
Besides, it doesn't take an economist to note that if tax cuts spurred investment and job growth, we wouldn't have the unemployment rate we have. Business has benefited from tax cuts for quite a few years, without investing in job growth [at least at home], you think more cuts would change that?
I don't.

 

[scottm4211]

I just learned that Obama is my Prime Minister

 

[blackpup]

What exactly is business supposed to have invested in over the last 30 years , China maybe Wall Street, giant sucking sound.
If a business had money to invest where would they have invested it.

jimmy

 

[chefdennis]

Cheri wrote:

because they are a NONPARTISAN research agency, meaning they collect info from all sides, not just what suits their agenda.
Biased is when you dismiss what doesn't agree with what you've already decided to think.

Oh!! You mean like the CBO another NONPARTISAN GOVERNMENT AGENCY... LOL...

 

[davekc]

Investment dollars are on the rise because of a variety of factors including but not limited to previous tax cuts.
The reality is much of the investment is moved overseas because they pay little or no taxes on that investment income.

 

[cheri1122]

Investment dollars are on the rise because of a variety of factors including but not limited to previous tax cuts.
The reality is much of the investment is moved overseas because they pay little or no taxes on that investment income.

The point is that whatever they [corporations & businesses] do with the additional money reaped from tax cuts, they DON'T create more jobs, which is the main argument used for them. The article is from Canada, but the arguments are the same here: tax cuts for job creation.
Without jobs, what have we got that's worth fighting for?

During the election campaign, the Conservatives have renewed their promise to reduce the federal corporate tax rate to 15 per cent in 2012 from 16.5 per cent this year and 18 per cent in 2010. They argue corporate tax cuts will boost job creation and competitiveness.

 

[davekc]

The point is that whatever they [corporations & businesses] do with the additional money reaped from tax cuts, they DON'T create more jobs, which is the main argument used for them. The article is from Canada, but the arguments are the same here: tax cuts for job creation.
Without jobs, what have we got that's worth fighting for?

During the election campaign, the Conservatives have renewed their promise to reduce the federal corporate tax rate to 15 per cent in 2012 from 16.5 per cent this year and 18 per cent in 2010. They argue corporate tax cuts will boost job creation and competitiveness.

It isn't just the federal tax. It is a combination of that and state. Illinois just raised the state corp tax to 35 percent. They are paying that plus the federal. That is the reason Cat wants out of IL. When the US is competitive with foreign countries on those investment dollars, the money will be invested here.
But I will say, many or most corporations are likely somewhere in the middle on those numbers because of using a variety of tax shelters. Or paid nothing sort of. GE comes to mind.
Whether job creation happens on tax cuts is debatable, but it has historically in the past.
As many say and I agree, "you can't tax yourself into prosperity".

 

[Pilgrim]

Business tax cuts don

The decline came despite continuing business tax cuts that have slashed the combined corporate federal-provincial corporate rate from 50 per cent in the 1980s to 29.5 per cent in 2010, according to the study, which The Star obtained and the centre will release this morning.

During the election campaign, the Conservatives have renewed their promise to reduce the federal corporate tax rate to 15 per cent in 2012 from 16.5 per cent this year and 18 per cent in 2010. They argue corporate tax cuts will boost job creation and competitiveness.

But the study’s conclusions sharply contradict the Conservatives’ view on the impact of tax cuts.

It revealed that before tax reforms in 1987, fixed capital spending as a percentage of GDP stood at 12.7 per cent. Since then, the rate reductions have not increased investments and actually pulled them down to 11.7 per cent of GDP.

But in the same period, after-tax cash flow climbed. As a result, the study said that as a share of available cash flow, the fall of investment spending is even more dramatic.

Just a couple of thoughts without grinding through all the numbers in this study:
1. Keep in mind this reflects economic activity happening within the Canadian tax system - not the same as the US.
2. Could it be that the ratio of investment spending to GDP dropped due to the RISE in GDP?(see graph in link)

Canada GDP per capita (Constant Prices Since 2000)

It's just a simple fact of life that higher corporate taxes do not spur economic growth.

 

[aristotle]

We could easily cut Big Government by 50% and get by just fine. Most growth in the size of government has happened in the last 30 to 40 years. American government functioned perfectly well when it was smaller and less intrusive. We now have more government than we can afford. The US federal government is $14 Trillion in debt and borrowing every dollar in sight. Every dollar that goes to government is a dollar unavailable to the private sector. No wonder businesses are fleeing to foreign lands. At the present moment, the United States government is hostile to business. Possibly half of a typical family income is taken away through some form of taxation and government mandates. Why isn't 50% confiscation enough for these rogues?

 

[greg334]

Just a couple of thoughts without grinding through all the numbers in this study:
1. Keep in mind this reflects economic activity happening within the Canadian tax system - not the same as the US.

Keep in mind that they have an embedded tax in their system - VAT - and this has an overreaching effect on how tax rates move the economy.

Because we don't have that embedded tax, our system even though messed up is better equipped to move the economy than theirs. They can't see the effect as we can because the overall taxes don't show a movement as they do here.

 

[chefdennis]

We still manufacturer more here then any other country...you bet that the corp. tax structure that is used here hurts manufacturing and creates job loss here...but also keep in mind that with innovation come the less of a need for "human labor"...jobs are lost to better productin methods and machines....

As for usng tax cuts to expand hiring, yes it does, how many people in the lowest tax brackets own businesses and hire people....and when a corp has to answer to investors, they use all advantages they can to make a profit and pay the shareholders...overseas labor is cheaper and that is a simple fact...if it isn't done by a machine or minimal labor cost here, it can be shipped overseas to take advantage of less corp expense in whatever way it needs to...don't like it? oh well you either don't own the companies or stock in them and expect a return on your investment...

Yes tax cuts provide jobs, maybe not at the level the libs wat, but take them away and see just how fast you see more job loss....

 

[greg334]

We still manufacturer more here then any other country...
...

Just to reinforce what' your saying ...

It may be true that we manufacturer more here but the correlation with manufacturer jobs and output is not there any more.

What I mean is this simple fact, as we grow our manufacturing with technology, the job growth doesn't happen - we get more efficient and the use of technology allows us to have one person do the job of 20 40 years ago.

Example is the little CNC shops popping up out of garages. Once it took four people to fab something, from the engineer to the draftsman to the machinist to the guy who ships the parts. NOW one person does it all and it is getting fast, better and the quality of work rivals what used to be considered ISO quality.

One reason we have seen low job growth but better manufacturing is because of that fact.

Many keep screaming about this thing with jobs but you know when a company like Ford invests into a plant in Mexico, they try to balance the up front costs with the cost of employees and employees can win out but if they want to build a plant in the US, they have two things to deal with; Unions and taxes. The taxes force them to move into the purchase/lease of equipment while the unions force them into using expensive labor. SO the solution is to outsource as much as possible, while limiting the use of labor but use as much technology as possible where they can without p*ssing off the union.