Nullius in Verba

An interesting tidbit in the Prime Minister’s discussion with Amanda Lang at Business News Network regarding the direction he is taking with Canada’s economy . He plans to reduce federal and corporate business taxes to the lowest level in the G-7 by 2010. (It is worth watching this interview as opposed to the stupidity of the usual media, ie: CTV, when it comes to discussing economics, this is a refreshing discussion).

Reduction in corporate taxes has proven overall benefits, and something Canada could learn from the Nordic countries like Sweden, Finland, Denmark etc. Canada has been making steady progress over the last several years in the right direction and we are reaping the benefits of it in terms of stability. In a large part this is due to the work of the Reform party, giving the Liberals no real stress in regards to doing what they inherently know is correct. Imagine if the NDP was the official opposition during the deficit crisis.

(Side Note: Read the Green Shift Critique Series)

A recent OECD article discusses the evidence for lower taxes equating to higher economic growth. In particular corporate taxes:

Increases in productivity: A second option is to reform corporate taxes, as they influence productivity in several ways. Evidence in this study suggests that lowering statutory corporate tax rates can lead to particularly large productivity gains in firms that are dynamic and profitable, i.e. those that can make the largest contribution to GDP growth. It also appears that corporate taxes adversely influence productivity in all firms except in young and small firms since these firms are often not very profitable. One possible implication is that tax exemptions or reduced statutory corporate tax rates for small firms might be much less effective in raising productivity than a generalised reduction in the overall statutory corporate tax rate. This reduction could be financed by scaling down exemptions granted on firm size as they may only waste resources without any substantial positive growth effects.

Investment: Corporate income taxes appear to have a particularly negative impact on GDP per capita. This is consistent with the previously reviewed evidence and empirical findings that lowering corporate taxes raises Total Factor Productivity (TFP) growth and investment. Reducing the corporate tax rate also appears to be particularly beneficial for TFP growth of the most dynamic and innovative firms.

I supposed I should have known more about his economic goal, but it has been flying under the radar for some time, except that is, those times it has raised the ire of Premier McGuinty who cannot comprehend such economic logic. However the Conservative Party of Canada (CPC) is horrible when it comes to getting its message across. While they bear a considerable amount of blame, much can also be attributed to the Mainstream Media which is relentless in its mission to frame the CPC in as bad light as possible. The MSM still has not explained that a reduction in the GST benefits poor people.

(When the Pharisees objected to Jesus’ meeting with tax collectors rather than the righteous, Jesus replied that it was the sick who need a physician, not the healthy (Matthew 9:9–13) )

Read the Green Shift Series Here