Jack Mintz is spoiling for a fight with the CFIB

Jack Mintz is spoiling for a fight with the CFIB. Providing low taxes and other support for small business has been public policy across Canada for years. Mintz is now suggesting that low small business taxes may be bad for economic growth:

In contradiction to the widely held view that small business tax concessions encourage growth, such small business tax relief could actually be antithetical to growth by creating a “taxation wall.” First, it could result in the breakup of companies into smaller, less efficient-sized units in order to take advantage of tax benefits even if there are economic gains to growing in size. Second, it could encourage individuals to create small corporations in order to reduce their personal tax liabilities rather than grow companies. And third, it could lead to a “threshold effect” that holds back small business from growing beyond the official definition of “smallness,” regardless of the criteria for measuring size (e.g., the size of revenue or assets, or the number of employees).

I don’t think I will weight too much into this issue but I will say that when former Premier Bernard Lord lowered the small biz tax rate to virtually zero a lot of unincorporated self-employed people switched presumably for tax benefits.  His other two claims seem intuitive but it is really hard to model this kind of thing because of all the other extenuating factors.

I think a better approach to the subject is a broader dialog on the definitions of small business, the roles they play in a local economy, etc.  This has been my approach and it is why I bristle when politicians cut small business taxes to ‘stimulate economic growth’.  Because 98% of small businesses operate exclusively in the provincial market it’s hard to see how cutting their taxes will lead to economic growth.  Now, if you could isolate the 2% that export and those that have breakout potential, that’s a different story.

Anyway, I thought this new report would be interesting to folks here because Mintz was also the architect of New Brunswick’s bold tax plan under Shawn Graham which was supposed to lead to dramatic economic growth.  While it may be coincidental, it is interesting that since the Mintz tax plan was rolled out New Brunswick, the province hasn’t seen a single net new job created.  Ooops.  Chances are Mintz is unlikely to revisit his thesis that deeply cutting taxes will stimulate growth based on the experience of New Brunswick.  I did hear him say that he had recommended an increase in the HST to offset the corporate and personal income tax cuts.

The wheels on the bus go round and round.

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3 Responses to Jack Mintz is spoiling for a fight with the CFIB

  1. mikel says:

    Interesting stuff, but most of it IS intuitive, and downright counter intuitive. It’s like saying that people don’t go out to work in the high paying professions because then they’d have to pay more tax. Its like saying that people don’t actually want raises or promotions because then they have to pay more tax. I don’t know anybody who actually thinks that way, but for some reason we are supposed to think that small businesses are sitting there thinking “well, there is no point to growing my business because then I’d pay more tax”.

    Small businesses fail though for other reasons besides tax. That the Lord years were reasonably prosperous ones in the world economy is the more worrisome point. It certainly seems MORE than counter intuitive to say that if you pay LESS in taxes, you are MORE likely to go out of businesses. It MAY be true, but we need more than Jack Mintz’s ‘word’ for it. It’s one thing to offer an explanation, its quite another to prove a point.

  2. Jessica says:

    As a small business owner who is quite well networked, I would say he is missing a key attribute of the small business owner. Entrepreneurship. A true entrepreneur is not satisfied remaining stagnant–growth is what stimulates us, drives us and gratifies. I agree with the comment above–who thinks like that?
    Do we drive the economy? Well, it would be interesting to hear the comments of others. I can say that my business has grown from 6 employees to 21 employees in the last 3 years. And our hiring plan for 2011? Ten more employees by August. Are tax cuts even on my radar right now? Not at all. That is a job for my accountant. My job is to lead my company to the top.

  3. mikel says:

    To use David’s frequent point, I am NOT an ‘entrepreneur’-well, sort of. I am a ‘small business owner’. I DON”T want ‘growth’, in fact I am quite lazy and would like to do LESS work. However, Stephen Harper is not dumb, one of the reasons to spend a lot of money on warplanes and warships is that even ‘liberals’ will see the value in lower taxes. I want to pay less in taxes simply because so much of what I see government do I see as immoral.
    But to agree with the above, whenever I talk dollars too much to my accountant he says “you worry about your customers, I’ll worry about the money”. The above is a good example of an entrepreneur, but we should keep in mind that every person is unique. I know business owners who are as busy as they want to be. In fact, I’d often say that ‘growth’ is often symbolic as success and the fear of ‘not going out of business’. You can lump in a lot of people here, I tried to get Dunsters doughnuts to expand into Ontario (for selfish reasons, not for health ones) and they weren’t interested. It was nice to see the Covered Bridge potato chip people in a store here, but again, thats just a bad market, one health food store had ten boxes but they just didn’t sell. I try to push them as much as possible, but companies need to understand that growth doesn’t always just happen-especially in competitive markets.

    There are lots of ‘small business owners’ who go into business simply because of lack of other opportunity-there is nothing wrong with that, but again, most usually make such little income that tax is the LAST thing on their mind. In fact, if you want to use that as a marker then most would LOVE to pay more tax, because it means you are making more money. If you know that you will pay less tax, you may be satisfied with less. Wait a minute-was that Jack’s point?

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