That old rapscallion and former Howard Government chief of staff, Cabinet SecretaryArthur Sinodinos was on television today, pitching a corporate tax cut. He was saying yes, an income tax might stimulate the economy but a corporate tax cut would stimulate investment and that would stimulate the economy more. This seems to be the mantra of the big end of town which is thirsting for the corporate tax rate cut.
"At least 50 per cent of the impact of cutting company taxes goes in higher wages for workers and higher employment," Senator Sinodinos said.
"Putting money into the hands of consumers obviously encourages more spending and disposable income and has good incentive effects. But cutting company taxes also has good effects.
"It can encourage investment, it can encourage higher productivity, it can encourage more investment from overseas."
Would that if it were so, Mr. Sinodinos. Earlier in the month there was a report about that sort of thinking which, in a nutshell claimed that it was tried in Canada already and had no such desired effect.
The Canadian federal government implemented three successive federal corporate tax reductions over the last generation. (Provincial governments also levy their own corporate taxes, averaging around 10 per cent, added to federal levies.) The first stage occurred in the late 1980s: the statutory rate was reduced from 36 per cent to 28 per cent, but various loopholes and deductions were closed in the process. The second reform occurred early this century: the general rate fell to 21 per cent, and preferences for manufacturing and resources were eliminated. The latest cuts were implemented beginning in 2007 by former Conservative Prime Minister Stephen Harper (defeated in last year’s election): he cut the base rate to 15 per cent, and eliminated a 1.1 per cent CIT surtax. Those last reductions alone still cost the federal government over $15 billion (Canadian Dollars) in foregone revenue each year.
Together, these successive cuts reduced combined Canadian corporate taxes (including provincial rates, which also fell in several provinces) from near 50 per cent of pre-tax income in the early 1980s, to 26 per cent today. In theory, the resulting boost to profits should have stimulated a strong response in business investment. Unfortunately, hopes for this “jobs and growth” dividend have been repeatedly dashed.
Hence, for all this talk about how cutting taxes for businesses would spur investment, I think we need to take that with a dump truck load of salt. The big end of town is simply going to pocket that difference and probably won't even pass it on as a dividend. In the absence of things to invest in, investments tend not to be made. Given that the Australian economy post-Commodity Supercycle is distinctly looking like a services-based economy, there really isn't a whole lot of places investments can be made. There's a great deal of non-incentive (as opposed to an active disincentive) for capital investment to take place. This is why the government ought to be pushing for infrastructure investment and not trying to run back to surplus by cutting budgets for everything.
As for the claim that would make wages go higher, that's a bit fanciful too because the big end of town has spent the post-GFC years pocketing all the productivity gains and not let wages rise. It's hard to see how money saved on top by these companies would translate into a burst of higher wages, or for those imaginary higher wages to go into the economy as spending when the most likely scenario is for that money to be spent on paying down mortgages - and then the bank sits on that money not investing it in things. I understand the Coalition government wants to help the big end of town but really, this is not going to have any effect. Arthur Sinodinos is simply wrong, working off ideologically driven bad advice.
Why The Government Fighting For A Surplus Now Is A Bad Idea
This one's a few weeks old, but worth dredging up because of Arthur Sinodinos above.
Here’s a little thought experiment to check the familiar argument that Abbott gave for the need to get to surplus: “Governments, like households and businesses, have to live within their means.”
Imagine that there is an economy where the money supply consists of a single dollar, which is exchanged 100 times per year among this economy’s inhabitants — thus generating a GDP of $100 per year. Then imagine that the government in this economy sets itself the target of running a surplus equivalent to 1 per cent of GDP. If the government achieves its objective, what will GDP be the following year?
Zero. And, if the government debt ratio was more than 1 per cent beforehand, it will be infinite afterwards.
Why? Because the economy had only one dollar of money in existence, and the government’s surplus took that $1 out of circulation, leaving the economy with precisely zero dollars for commerce the following year. The government budget affects GDP by changing the amount of money in circulation in the economy, and a government surplus effectively destroys money.
This is utterly unlike a household. Household saving does not destroy money, nor does it materially affect the household’s own income, since a single household is such a small part of the national economy (even if we’re talking James Packer’s household).Got it?
If, - like Worst-Treasuerer-Ever Joe Hockey did, - you go around telling important people from around the globe at things like the Brisbane G-20 that what the world needs now is economic growth and lots of it, the last thing you should be doing is busily taking money out of the economy - i.e. don't go around cutting the budget in the hopes of getting back to a surplus. It's akin to saying you want your car to go farther because that's what is needed, and then busily syphoning out fuel from the tank. It's self-defeating and self-contradictory.
I bring this up, just in case you were wondering why WTE Joe really was WTE, and why Tony Abbott really deserved the tag 'Stupidity' in every post I made about his government. You can lie your way into office, but you can't work out of the office without facing up to facts. And logic.
You wonder about the education these men failed to get in their fancy-pants private school.
The Devil And Hillary Clinton
Here's something from Pleiades that you might find interesting.
Donald Trump is as frightening as his opinions are poorly considered. His life has been lived around people whose livelihoods depend on not telling him to shut the fuck up. His nominal constituency by-and-large has no context for this— what to them appears as ‘speaking truth to power’ is in fact a privileged bully enamored with the sound of his own voice. Mr. Trump was born into the class that establishment Democrats and Republicans have spent the last four decades making so wealthy that it separates them from the consequences of their socially destructive actions. Donald Trump is an inheritance-baby insider who plays an outsider on television. It is hardly an accident then that Mr. Trump and Hillary Clinton have been friends for over twenty years.
The Democratic establishment is in the process of shoving Bernie Sanders out of the way to put Hillary Clinton forward as the candidate to beat Donald Trump. The term too-clever-by-half comes to mind. The ‘missed opportunities’ of the last seven years are in the process of asserting themselves. Mrs. Clinton is a war-monger, free-trade-agreement loving friend of Wall Street at a time when a fair portion of the conscious public would just as soon burn the whole mess to the ground with Mr. Trump. The question for those who would vote for Mrs. Clinton to ‘stop’ Donald trump is: who are you going to vote for to stop Hillary Clinton?
It's not like it's even a surprising call.
As the years go by, the Bill Clinton presidency seems more and more like one big wasted opportunity. The number of things they botched up in the process has been a parade of negative consequences both intended and unintended. For all the popularity he had, Bill Clinton never really did the things for his constituents that made their lives better. He and his wife Hillary did things for their Wall Street friends first and foremost. The America we see today that puts Donald Trump as the Republican frontrunner is a result of the Clinton Presidency as much as both Bushes. It's hard to understand why the Black leadership really want to go around the block again with the Clinton election machine. After 24 years, you'd think it was obvious that they don't get out of it nearly as much as the Clintons do.
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