Corporate tax cuts contributed to slower economic growth, study finds

Corporate income tax cuts have lead to slower economic growth, a study released today by the Canadian Centre for Policy Alternatives (CCPA) has found – a finding that flies in the face of claims by both Liberal and Conservative governments in the last three decades that corporate tax reductions contributed to faster economic growth.

The study, by Unifor economist and CCPA research associate Jordan Brennan, examined the relationship between the Canadian corporate tax regime and various dimensions of growth and finds there is no empirical or statistically significant relationship between corporate tax cuts and growth.

“Corporate income tax cuts could go down as one of the great Canadian public policy blunders of recent times,” Brennan said. “The problem is the facts stubbornly refuse to support the notion that corporate tax cuts accelerate growth.”

According to the study, the level of business investment since 1980 has hovered around a historic low, despite several rounds of cuts to corporate income taxes, while employment growth has been anaemic among large firms and the business sector, and the GDP per capita has grown at its slowest rate since the Depression-laden 1930s. 

“In short, corporate tax reductions happened alongside under-investment, a job crisis, and deep stagnation,” says Brennan. “Far from spawning higher levels of business investment and GDP growth, corporate income tax reform has indirectly fostered slower growth.”

The study aims to build an argument for why a moderate degree of stagnation is desirable from a business standpoint.

The hoarding of corporate cash, which is generally recognized as having a depressing effect on growth, is closely associated with the increased corporate and national income share of large firms, the author argues.

“By reducing corporate income tax rates, Canadian governments contributed to the increased income position of large firms,” Brennan says. “Instead of investing their increased earnings into growth-expanding industrial projects, Canada’s corporate sector—especially its largest firms—has stockpiled cash. This ‘dead money’ is one ingredient in the heightened stagnation of recent times.”

6 Responses to Corporate tax cuts contributed to slower economic growth, study finds

  1. Debra says:

    Trickle up Economics is, in my opinion, the biggest lie of the century. It enabled 1% of humanity to own 50% of EVERYTHING.

  2. Robert White says:

    Trickle down ‘Economics’ is a mythology utilized to appropriate wealth transfer for the Corporatist classless kleptocratic Oligopoly. Furthermore, Quantitative Easing Infinity, Financialization/Securitization, and stock repurchasing, is evidence that Central Banking is a failed experiment that is looking more like a 1% ruse everyday.

    • Jozsef Auszmann says:

      David Stockman, Reagen’s budget director in the 80’s said 20 years later trickle down was a lot of BS !

  3. michael says:

    The issue is lack of investment opportunities. Corporations are typically fairly rational actors – they seek to maximise return on invested capital. By reducing corporate tax rates, you return more capital to corporations. The desired impact is that they will invest that money and grow creating positive feedback. However, if the return on investment does not exceed the cost of that capital, then it is better to return that money to shareholders either through buy-backs or dividends.

    To the other posters, trickle down economics does work:

    If borrowing costs are high, then by reducing tax rates you encourage the wealthy to save / stockpile cash which drives interest rates lower. In Canada, at least some of the fall in interest rates can be attributed to increasing personal, corporate and government savings (although there are other impacts such as falling demand for commodities etc). This is driven partially by lower corporate tax rates. HOWEVER, the problem with Canada in the 2000s was NOT high borrowing costs. So whereas trickle down economics DID do exactly what it is designed to do, what it was designed to do was not what the people of Canada needed.

    So to the non-economists who complain about trickle down economics being myth, it is demonstrably true that reducing corporate tax rates also reduces borrowing costs. However, it does not necessarily have any impact on improving GDP or quality of life.

  4. Balraj Cheema says:

    This is the most important factor in bringing down the societies all over. Corporations had laterally taken over ( with the connivance of the governments) from revenue department and would permit themselves exemptions reduced to zero percent whereas common was being grinder under work and heavy taxation

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