Jack Layton makes the case for corporate giveaways

I quote:

“It’s 2010 and Stephen Harper dishes out more tax breaks to rich corporations. He says that it will make Canada more attractive to job creators.  Well one of those companies, Electrolux, sure did create jobs. 1300 in Memphis by moving them out of Canada.” “Unlike our plan, Stephen Harper’s jobs policy is across-the-board tax breaks, even to large profitable companies shipping Canadian jobs overseas,”

Jack, Memphis isn’t overseas.  To be serious, let’s take a look at what is behind this:

http://www.montrealgazette.com/news/todays-paper/Electrolux+jobs+moving+Memphis/3986071/story.html

http://www.memphisdailynews.com/editorial/Article.aspx?id=54921

Again, I quote:

The 700,000-square-foot Memphis plant will be built on 800 acres of land. The city and county mayors will seek $20 million from each local government for public infrastructure, including roads into the industrial park. The state of Tennessee is putting up another $92 million for infrastructure and facilities at the industrial site.

Memphis won out over Mexico and other locations because of its low cost structure, skilled labour pool and favourable logistics, he said.

“Decisions like this are never easy, but this time it was clearcut because of the extensive support we received from state, city and county … the choice will strengthen our position in North America,” he added.

In short, Memphis has a favorable cost structure, and Canadian Governments weren’t willing to offer similar subsidies. So should not Jack be arguing for more subsidies if he wants to use the Electrolux example?

So what about the “dishing out corporate tax breaks to rich corporations angle?”  In this case, Electrolux made the decision to move based on other costs and attractive features offered by Tennessee.  Because they moved their plant, they can no longer take advantage of our lower tax rate.  Even without Mr. Harper’s lowering of the tax rate, Electrolux would have moved.  Thus, this is one corporation that we are not handing a tax break out to. Sorry Electrolux, you missed out!

This leaves the overall revenue loss of federal rate cuts to be almost revenue neutral at $100-million. At such a small revenue cost, the federal corporate tax reduction is great policy. As I estimated last year, the three-point reduction in the corporate rate would lead to an increase in capital investment of about $50-billion within seven years. A $100-million annual revenue loss that can generate that much new capital expenditure is a slam-dunk in policy terms. 

Growing the economy will also lead to higher incomes and jobs. The personal, sales and other tax revenue raised by federal and provincial governments would add substantially to the pot of money available to governments. None of this is included in my numbers.

Overall, we would be cutting off our nose to spite our face if we decide to roll back the corporate tax reductions brought in this year and next.

Even Liberal MP and economist John McCallum admits there would be a loss of jobs if we rolled back the corporate tax rate reductions:

A job loss isn’t minor if it happens to someone in your family!  As well, a lost job increases the cost of EI programs, and pays lower income taxes.

Could this be why they are losing jobs?

Do we really want American style high corporate tax rates?  Could this be why our unemployment rate is going in the opposite direction than theirs?

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~ by Dan Bergen on April 4, 2011.

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