Drummond on corporate tax rates: What difference do a few points make?

Chandra's picture

Don Drummond had a bit of a strange op-ed in the Toronto Star on Sunday. On the one hand, he acknowledged the debate over the option of corporate tax cuts and called for the impact of cuts to be monitored so that we know whether or not they are actually delivering on their goals. On the other, he reviewed and dismissed all of the arguments against corporate tax cuts as negligible.

Drummond argues that the fact that our combined federal-provincial corporate tax rates are lower than the US corporate tax rates does not mean that we’re competitive because we need to diversify our economy and focus less on the US. He doesn’t acknowledge, however, that corporate tax rates are only one of the many things that make our economy competitive and that many of the other priorities on that list – a well-educated workforce, access to markets, social infrastructure and quality of life – are supported through public services and programs paid for by taxes.

He also refers to the criticism that “corporations are not using the higher after-tax profits to ramp up investment,” a finding revealed in separate studies by the Globe and Mail and by Jim Stanford of the Canadian Auto Workers, but he offers no reaction to this criticism other than to say that the link between investment and tax cuts should be studied going forward. If the evidence suggests that a policy will not have its intended impact, you’d think that more than study is required to fix the policy.

Perhaps the most revealing dismissal, however, is Drummond’s reaction to the transfer effect of the difference between Canadian and US corporate tax rates. The US has a global tax on profits. When Canada’s combined tax rates are lower than the federal US tax rate, as they are now, American companies have to pay the difference in tax to the American government. Estimates from sources as diverse as Erin Weir and Munir Sheikh place the transfer effect at between $4-6 billion a year. Drummond responds: “In practice, this point may not be very significant.”

This reminds me very much of an earlier Dan Gardner column this year in the Ottawa Citizen, in which Drummond is cited as saying “whether [the corporate tax rate is] 15 per cent or 18 per cent just won’t make a difference to the big picture.” In fact, he thought it was amazing that an election could be fought over such a trivial matter.

The difference between a corporate tax rate of 15% and 18% is, of course, $6 billion a year, by the Finance Department’s own calculations. In other words, just as with the transfer effect, Don Drummond just doesn’t think that $6 billion is a big deal to Canadians.

What could we get for $6 billion a year? The Alternative Federal Budget of the CCPA provides some options:

  • $1 billion to provide safe drinking water for many of the 114 communities under drinking water advisories
  • $1 billion to create more affordable early learning and child care spaces, since only 20% of Canadian children aged 0-5 have access to a regulated child care space
  • $0.9 billion to increase our Official Development Assistance towards our promised goal of 0.7% of Gross National Income (currently at only 0.3% of GNI)
  • $1.1 billion to make the threshold for receiving Employment Insurance benefits universal at 360 hours, ensuring fairer treatment of workers across the country
  • $0.5 billion to add 5 additional weeks of benefits for all EI recipients, in recognition that many EI recipients are running out of benefits without finding new work because of the lingering impact of the recession
  • $1.5 billion for new affordable housing for some of the more than 4 million Canadians in core housing need.

All of these are investments in programs and services that are badly needed by the most vulnerable and marginalized Canadians or by the poorest countries in the developing world. $6 billion might not seem like a lot of money to Don Drummond, but to those living in poverty, economic insecurity, with unsafe housing conditions and lack of clean water, $6 billion would go a long way to improving quality of life, creating economic security, and providing dignity.

And if I still don’t have you convinced that $6 billion is not a trivial amount of money, consider this. In 2008, the poverty gap in Canada – the amount of money needed to bring everyone in Canada up to the poverty line – was $13.1 billion. If we provided $6 billion a year directly to low income Canadians by means of a Guaranteed Livable Income, we could reduce poverty by nearly half.

So whether our corporate tax rate is 15% or 18% is not a very trivial matter. It matters a great deal.

Chandra Pasma is CPJ's former Public Justice Policy Analyst.

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