Monday, January 31, 2011

Corporate tax cuts could bring down government - The Globe and Mail

This story Corporate tax cuts could bring down government - The Globe and Mail suggests that the government could be brought down by the combined opposition over its plan to lower Canadian corporate taxes. It should be. The Conservatives are trying to sneak one through here -- "tax cuts" -- without explaining who is getting this cut, who is going to have to pay for the lost revenue, and what effect the tax cut will have. It will improve the economy? Really? How? Cuts to the GST were supposed to do that, but it didn't. In fact, the cuts were political; designed to make the Conservatives look good. There is not a reputable economist in the country who believes they had a positive economic effect and virtually everyone agrees, in fact, that the effect was negative. So ... how will corporate tax cuts help the average Canadian? Corporations will spend more? Really? How do we know that? But, more importantly, where will they spend? How much? Could a corporation not take a revenue saving and spend it on a foreign factory and cost jobs in Canada? Well ... no, it would not do that? Really? How do you know?

This is a very poorly considered policy. It is driven by ideology and that is what makes it bad. According to conservative economic theory tax cuts to large companies should improve the economy. Do they? Well, I don't think anyone in the government bothered to check and that is the problem with ideology. You believe it so fiercely that evidence is irrelevant. Everyone knows it to be true so why bother to check the details. (There is someone reading this blog right now, saying "he must be a raving lefty to ask such questions about things everyone knows to be true. Yet, all I have done is ask empirical questions). It is possible that Harper is right. Let's see the evidence, though, before we had over a chun of national revenue, no strings attached.
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But ... so what? The Economics of Ambiguity and Threat

Threats -- the subject I addressed in a previous blog -- are interesting, I tried to argue, from an economic perspective. They are used when...