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Why tax cuts make us weak

I don't think I have ever re-cycled a column before but the whole question of tax cuts and all the issues it involves never really changes. In November, 2007, I wrote a column for the Tyee and rabble focusing on Conservative finance Minister Jim Flaherty's five year tax cut plan. This up-coming cut to corporate taxes (by 1.5%, binging the level to 15%, the lowest in the G7)) is the final outrageous installment. Here's what I said then. Nothing has changed - except now we have a huge deficit to deal with, and the corporate tax cuts are even more irresponsible.


Why Tax Cuts Make Us Weak

Taxes are the price of a civilized society. Support them.

So here we go again, another round of huge tax cuts as the country continues down the road to a neo-con dystopia. Over the next five years the revenue that pays for the things Canadians say they want will drop by $60 billion. There are cuts to the GST, to personal income taxes and corporate taxes -- with the latter dropping by 2012 to 15 per cent (from 21 per cent today), an outrageous corporate giveaway, giving us third world status in the "attract investment" race to the bottom.

It is the continuation of a 20 years process of diminishing the country -- a conscious plan implemented by three prime ministers from both the Liberal and Conservative parties. Between 1984 and 2006 the federal government, which is supposed to be looking after the interests of the country, has voluntarily given up over $250 billion in revenue -- an amount that would have made a huge difference in the quality of life of Canada. We can now add $60 billion more. Provincial governments are equally culpable.

It's not hard to list the things we could now be enjoying as a country had those cuts not been made, especially taking into account the annual revenue we would have: a national child care program, a national pharmacare program, a home care program, social housing, radical cuts in tuition fees, and the elimination of this country's staggering infrastructure deficit, estimated to be between $60 billion and $120 billion.

Why business needs taxes

Of course, the conservative voter would say, this is a mostly a left-wing wish list. But look more closely at what could be done with these surpluses and with a return to tax levels of the fairly recent past. Take the infrastructure deficit: the crumbling of our municipal services like sewer and water, our roads and bridges, and our ports. Spending on these things is hardly a left-wing fantasy. It is business which depends on these things at least as much as ordinary citizens and communities.

We hear ad nauseam about Canada having to be globally "competitive," but how on earth can we be competitive if our bridges are actually falling down, as they are in Quebec? Does the corporate elite in this country really believe that the only thing governments need to do to remain competitive with other jurisdictions is to cut taxes? We have been cutting taxes on corporations for 15 years to the point where we now tax them considerably less than they do in the U.S. But still we aren't "competitive."

The role of corporate tax cuts in spurring investment has always been exaggerated by big business. Surveys of CEOs over many years have shown that the income tax rate usually plays a secondary role in investment decisions. The more important issues include the cost of borrowing, availability of trained workers, energy costs, the reliability of transportation infrastructure, access to markets, and land costs. The issue of income tax is only important if you actually make an income.

And what about child care, another purely left wing demand? Hardly, if you take seriously all the corporate hand-wringing about the worsening labour shortage. What do the tax-cutters think will solve the labour shortage? Tens of thousands of Canadians have long since given up even looking for work because child care is so expensive it would absorb most of their take home pay. A major Health Canada study revealed that deteriorating conditions in work/life balance was the key factor in Canada's plummeting birth rate. No wonder there's a labour shortage -- we aren't making workers any more.

What about a pharmacare program? The lack of such a universal program costs large companies hundreds of millions each year -- in terms of the cost of the health plans they provide their employees. Tuition fees? How is it good for competitiveness if fewer and fewer young people can actually go to university -- and those that do are saddled with $30- 80,000 in debt? Social housing? Ask the Vancouver Olympic Organizing Committee if they think having thousands of people living on the streets makes us internationally competitive -- they are panic stricken about Vancouver's image.

Truly 'competitive' nations

Will yet more tax cuts make us more "competitive" as Finance Minister Flaherty said in his economic update? If the figures of the World Economic Forum -- the most elitist international forum on the planet -- are to be believed, more tax cuts will actually have the reverse effect. In 1999, the year before Paul Martin introduced his huge tax cuts, Canada was 5th in the competitiveness sweepstakes. After seven years of tax cuts we are in 16th place. Who beats us? Amongst others, the Nordic countries, which collect half their GDP in taxes each year. Nine of the 15 countries ahead of us have higher taxes.

This draconian slashing has nothing to do with competitiveness. It is ideology run amok. It is no secret that Stephen Harper has a visceral contempt for what Canada became after the Second World War. But he can't get rid of government directly so his plan is to gradually starve it to death. The relentless attack on the tax base creates the useful crisis corporate governments need to justify cutting social programs, environmental protection and other social riles of government. Keep cutting taxes and revenue and eventually you get deficits.

The continuing savaging of government revenue is the throwing down of the gauntlet by the right to all those who support activist, social democratic government. The problem is that no one in the constellation of Canadian progressive groups, including national unions, seems willing to take up that gauntlet. While these groups are making admirable efforts to keep medicare public, to lower tuition fees, to establish universal child care, to create social housing and increase foreign aid, none of them have yet taken on the critical, national task of fighting tax cuts. Yet all of these things depend on government revenue. Without that revenue any political victories on these issues will be pyrrhic ones.

It is long past time that civil society organizations, especially national unions, take up the challenge presented by massive reductions in government revenue. Let's mobilize Canadians around the conviction that taxes are the price we pay for a civilized society.

Murray Dobbin is a blogger and journalist. This column originally appeared in his blog. Reprinted with Mr. Dobbin's kind permission.