Thursday, November 04, 2010

Seeing the forest for the corporate tax cuts

It seems the business lobby and the Conservative government are gearing-up for a vocal and prominent campaign against the Liberal promise to reverse the planned billions of dollars in corporate tax cuts by the Conservatives, promising instead to invest the money in key priorities such as health, education and home care, saying we just can't afford corporate tax cuts right now.

The business lobby is planning an ad campaign to attack any reversal of the tax cuts, brandishing the usual fear-mongery cudgel of competitiveness and job loses, messaging echoed by the Conservatives. And with the need for simple messaging in mind, the Liberals are presenting it as a simple choice: tax cuts for businesses or investment in home care, education and pensions?

Really, though, while I don’t expect the Conservatives to change course, it’s somewhat more disconcerting (but not surprising) that the business community can’t see the forest for the trees, here. Sure, what business wouldn’t like to pay less taxes? What individual wouldn't? But the fact is businesses would also benefit from the investments the Liberals are promising to make with these limited resources.

It’s worth noting first that, in fact, Canada’s corporate taxes are already incredibly competitive with our primary competitors and nearest neighbours: The United States. There’s no driving need bring them down further right away to correct some paralyzing imbalance. Sure, it’d be great if everyone could pay less taxes. But taxes pay for things, we have a significant deficit, and this is money that, right now, could be better utilized elsewhere.

And what the business lobby doesn’t like to tell us, because it doesn’t support their natural goal of getting more and more for their members, is that making an apples to apples comparison on tax rates between jurisdictions such as Canada and the U.S. doesn’t make sense.

There are a lot of other factors that make it cheaper and more competitive to do business in Canada, the biggest one being our public health care system. Companies in the U.S. need to spend a lot of money subsidizing health care for their employees to attract top talent. In Canada, they don’t. Health care is a huge cost of business for American businesses. I visited one large technology company in the U.S. that even built a medical clinic on its sprawling campus for its employees.

It’s short-sighted to focus just on tax rates. The fact is, our taxes pay for services that contribute to a happier, healthier, more well-educated and, therefore, more productive workforce, all of which benefits the corporate bottom line.

And if you look at where the Liberals want to spend that money the Conservatives just want to shove out the door as tax breaks for business in a time of deficit, the fact is businesses, as well as Canadians as a whole, stand to benefit more from the Liberal plan.

Take the planned Liberal investments to expand paid home care. Currently, people need to burn through their vacation time to care for a loved one, and then either take unpaid leave (if their company will let them) or come back to work stressed, frustrated and unproductive. Some companies offer paid compassionate leave for employees. This program would remove that necessity, and supports employees through a difficult period until they can return to work sad about their loss, but secure in their job.

The other two Liberal priorities? Strengthening and protecting the pension system will make employees feel more confident and secure about their retirement plans and lessen the pressure for employers to step-in with expensive employer-funded plans they can no longer afford to support.

And the benefit for businesses from investments in early-learning and childcare and post-secondary education is obvious. No business can be successful without a large pool of well-educated, talented workers. Tax rates are important too, but a business isn’t going to invest in a jurisdiction if there isn’t a large pool of people with the education and skills they need. Learning is critical, from childhood right through post-secondary.

On a simple messaging question – a choice between corporate tax cuts or home care, pensions and education – I think I know on which side most Canadians will come down. And I also think that, despite what the business lobby might say, many businesses (and let’s remember, most Canadian businesses are actually small businesses) will come down on that same side too.

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1 comment:

ottlib said...

Great analysis but it misses one big point.

Businesses are more concerned about the next quarter than the next year, 5 years or decade.

Everything you said is true but businesses will not realize much benefit from them for decades.

Tax cuts will go to their balance sheets right now.