Corporate tax cuts will probably lead to spending cuts
By Letter to the Editor on April 1, 2019.
The UCP plan to reduce the corporate tax rate from 12 to 8 per cent over four years will not re-establish the billions of dollars of lost oil exploration/production investment that Jason Kenney often refers to. This was lost due to the inability to move oil to markets. The UCP tax reduction will have no impact on getting pipelines built or in adding additional rail cars to move crude oil as there is no reference to either on the UCP web page discussing their “Job creation tax cut.” Contrast this with the NDP who will be leasing 4,400 rail cars, which could move 120,000 barrels/day of oil by July 2020. By the time the UCP holds their referendum on equalization in October 2021, in the event of insufficient progress on pipelines, the NDP rail cars will have moved up to 58 million barrels of oil. Also, the UCP tax cut will not result in any significant petrochemical expansion as there is no reference to this on their web site. Contrast this with the NDP royalty credit program that has already resulted in $6 billion investment for plastic plants near Edmonton, which helped drive a $120 million propane extraction upgrade 100 kilometres north of Medicine Hat. Mr. Kenney seems perplexed by royalty tax credits as he’s stated he is not necessarily against the idea of royalty tax credits, but he is against picking a handful of winners and losers. Can the UCP make the Methanex expansion a reality based on their election platform alone or will they need to copy the NDP with some sort of incentive? The UCP tax reduction will result in higher corporate profits, some of which will be invested inside Alberta and some outside and there may be benefits to the economy. But Mr. Kenney’s claim that this tax cut will result in increased tax revenues is disputable and overly optimistic. This same claim was made by Republicans in the 1980s and recently by Donald Trump and in both cases the U.S. deficit increased after tax cuts. A study by the National Bureau of Economic Research (working paper 11000) concluded that only 50 cents comes back in revenue for every $1 cut in corporate tax rate. Maybe the tax reduction is being done over four years to better hide potential revenue loss. And if the tax cut is so beneficial why not do the 4 per cent all at one time? The UCP should acknowledge that spending cuts will be required to make up for this tax cut or the deficit will increase. Denis Hoffman Medicine Hat 6-5
Denis is right. It’s a well known fact in the world of finance that cutting corporate taxes does not create jobs, only richer CEOs. Why would a company go out and hire more staff just because the government reduced their taxes? The only thing that creates jobs is higher volumes of work, in other words sales.
Denis, you make too much sense.
UCP supporters are too diminished to think it through; they believe in Jason’s fairy dust, you know, the stuff he’s been hiding in his mum’s basement.