My last word (almost) on tax reform

Look. I am getting a little tired of folks throwing around these scenarios of “what will happen” if we have tax reform in New Brunswick. I will completely ignore all the talk about flat taxes hurting women more than men, etc. because I am not a tax guy and, unlike 95% of people out there, I don’t pretend to be one.

But specifically to corporate tax cuts.

The reality is that neither AIMS, the UNB economists or the Discussion Paper itself have given even a shred of proof that the assertion that cutting the corporate tax rate to zero will lead to significant investment in New Brunswick. How about a few examples? Particularly examples that fit with New Brunswick’s situation? For most fair minded people, you need to provide some evidence before making wild assertions (just ask my editor over at the TJ – keepin’ me on my toes).

Here are the corporate tax rates levied by the U.S. states:

Alaska – as low as 1%
Maine – as low as 3.5%
Mississippi – 3%-5%
South Dakota – none
North Dakota – as low as 2.5%
Hawaii – 4.4% to 6.4%
Kansas – 4%

Look folks. Take it from me. These six locations are not bastions of new business investment.

Now, on the high side:

Pennsylvania 9.99%
West Virginia – 8.5%
New Jersey – 9%
Rhode Island – 9%
Minnesota 9.8%

You can see there is relatively low correlation between the corporate income tax rate and successful U.S. state economies.

Now, again remember the caveat that I am not a tax expert, in New Brunswick, corporations do not pay HST. This is a flow through tax. Businesses collect it and deduct any of their own HST paid off of their remittance to CRA. This is not so in many U.S. states. In fact, in many areas of the U.S. there are a host of other taxes such as inventory taxes and even local income taxes.

So, why haven’t NB businesses led North America for business investment? Why haven’t multinationals flocked here to take advantage of this positive tax environment? Because there is far more to business investment than tax rates and AIMS, and David Morrell and, yes, even NBT knows this.

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0 Responses to My last word (almost) on tax reform

  1. mikel says:

    The simple reality is that we call these things ‘tax havens’. The question they are asking is ‘should new brunswick be a tax haven’. I mentioned this before, SINCE corporations pay so little, would there be a benefit to just cutting it completely and ‘maybe’ that would get some new investment blood.

    That’s what Ireland did, I read a paper on how Pharmaceutical companies and tech companies use ‘transfer pricing’ to avoid taxes. Your frequent example of microsoft is a good example, they set up a branch in ireland, transfer patents to the lower tax zone, and last year saved over a quarter of a billion dollars in taxes.

    Like you’ve said, the US CAN actually be high tax-again I’ll mention that Irving pays 4 million in property taxes on their refinery, while in Californa a company is complaining because they’ve been paying 30 million in property taxes. In Maine they will be paying upwards of $8 million in property taxes on their LNG terminal which NB has frozen for Irving at 500 grand. So, if you were a corporation where would you want to be? And since NB is so much cheaper than the states, why aren’t gas companies beating down the doors? Obviously, and I mean VERY obviously, there is something else at work.

    A tax haven CAN benefit, the question is WILL they, and that all depends on the fine print. It COULD be a great thing. Nova Scotia announced all those tax credits for culture and entertainment industries, and NB did nothing, and most producers packed up and left. This COULD be a benefit to balance that out, but we need good data.

    Without data all anybody can do is guess. If you look at up and comers like Fatkat, they are still at the stage where the government is giving them cheques, and the boss said right here that without that he’d be gone. It’s too bad he’s not a regular reader because it would be interesting to know what FatKat pays in CIT, or at least whether the tax savings will actually balance it out so that subsidies are not necessary (and whether that means there is no difference).

    But a tax haven is a tax haven, you can’t very well tout the benefits of Ireland without mentioning the main feature of their economy-no companies moved there for the guinness, they can buy that anywhere. However, for years they have been saying ‘we have to be more competitive…competitive…’.

    Meanwhile, you can’t miss the irony of a small province with less than a million people, with the headquarters of two multibillion dollar international enterprises, which has the highest rate of per capita poverty and where the private market systematically fails to perform as well as the public industry. This is a province where Irving is talking about building a massive headquarters yet you have a province where kids were killed because the van they were driving to a sports event wouldn’t have passed inspection.

    Do the smart thing at least-get every executive and AIMS member and politician who supports that move to sign on the bottom line-so that if that money disappears and there is no new investment-you can garnish their wages to pay for it.

    The BAD side of that is that while a tax haven gets benefits, if in the end they simply cut the CIT one or two percent as a ‘compromise’, the province isn’t actually a tax haven and no company would even think twice about moving there. But think about it, RIM made 2.2 billion in revenue during last quarter, while ten percent of that went to taxes. How much of that is ontario tax I don’t know, but its good incentive for RIM to move to NB, they’d save about a billion a year.

    Just thought I’d add that that should be proof enough that I’m no idealist because of course it sets the stage for that ‘race to the bottom’ that ends up with EVERY province offering free deals, and could very well simply have RIM going to see the Premier and saying “look, we’d save X millions by moving to NB…what are you going to do for us”. However, what NB needs is decent jobs, and if playing hardball would do it, I’d suggest it. I get the unfortunate feeling though that the whole thing is just an exercise in seeing how complacent the population is…remember, wasn’t it here we got the analysis about how all that the small business tax did was result in more companies forming corporations? Now they are just going one step further.