During the first week of this month, Danielle Smith became the second person to lead the United Conservative Party, replacing its inaugural leader, Jason Kenney.
Just a few days later, she was sworn in as the province’s 19th premier.
Now that Kenney is no longer the premier, nor the UCP leader, I’d thought I’d take this time to explore one of his most controversial initiatives: the Job Creation Tax Cut.
Kenney’s plan was to lower the province’s corporate profit tax rate from 12% to 8% over a 2.5-year period. And he framed it as being good for the province because it would lead to more jobs. After all, the theory goes, if companies have more money from not paying taxes, they’d have more money to pay worker salary.
According to a media press release published by the UCP government, for example, it was supposed to create a minimum of 55,000 jobs and increase the province’s GDP by almost $13 billion.
Leading economist Jack Mintz estimates the changes will help create at least 55,000 additional jobs in the province, while Bev Dahlby at the University of Calgary projects the tax reduction will boost Alberta’s GDP by nearly $13 billion.“Job creation bill gets Albertans back to work”, Government of Alberta, 28 May 2019
The original plan was to cut the corporate profit tax from 12% to 11% by 1 July 2019, then to 10% the following January. A year later, it was to drop to 9%, and finally it would stop at 8% in January 2022.
However, the Kenney administration took advantage of the pandemic, and accelerated the timeline by slashing the corporate profit tax rate from 10% (which it had reached by the time the pandemic hit) to 8%, a year and a half early.
Regardless, the question remains: now that we’ve had an 8% corporate profit tax rate in place for over two years, has it created 55,000 or more jobs? Has the GDP increased by $13 billion?
In June 2019, the number of people employed in Alberta was 2,288,700. In September 2022, the most recent month for which we have employment data, there were 2,372,300. That’s a difference of 83,600.
Mission accomplished, right?
Well, in terms of absolute numbers, sure. But we need to look at the context of those numbers.
For example, September’s employment numbers of 2,372,300 is 3.65% more than what the province saw in June 2019.
But check out how Alberta’s population changed during the same period. In June 2019, there were 3,450,500 living in Alberta who were at least 15 years old. That number grew to 3,637,800 in September 2022, a 5.43% increase.
In other words, while the number of people working in Alberta has certainly increased since the Job Creation Tax Cut was implemented, that increase wasn’t even enough to keep up with the increase to population.
That’s not all.
In June 2019, there were 1,886,700 people working full-time. Last month, there were 1,916,700. That means that there are 40,000 more full-time jobs than there were before the UCP cut the tax on corporate profits.
That means that more than half of the 83,600 new people working in Alberta since June 2019 are working in part-time jobs.
Here’s another way to look at it.
In June 2019, full-time jobs made up 82.5% of all jobs in the province. Last month, they were at 80.8%. While we technically have more full-time jobs now than we did 3 years ago, there are also more people are now working part-time jobs, relative to the number of people employed in Alberta.
So, jobs didn’t increase as quickly as the population did, and of the new jobs we did get, most of them ended up being part-time.
So, I guess, yay?
Even then, there is still no evidence that the jobs we did get were a direct result of the Job Creation Tax Cut, rather than general growth in the economy due to demand created by increased population.
Companies don’t hire more workers just because they pay less in taxes. Taxes come out of a company’s profits. So if they pay less in taxes, it means they have more profit, and no one is going to hire more workers just because they have more money on hand, unless demand was already increasing for their products and services.
The idea that a company is just going to hire more workers to meet the demand they’re already meeting with their current workforce simply because they happen to have more profit is nonsensical.
Companies don’t pay corporate income tax on worker wages; they pay taxes on what’s leftover after worker wages (well, and all other expenses). When it comes down to it, actually, the more that companies pay out in wages, the less they have leftover to have to pay in taxes, in absolute dollars.
Which means that if you really want to cut down on how much companies pay in taxes, encourage them to raise worker wages. Those workers will then spend that money (on groceries, clothes, gas, homes, cars, hunting trips, hockey games, dance classes, and so on). That extra spending will drive up demand, which will further increase production, leading to more jobs.
Companies pay less in taxes, workers improve their standard of living, more jobs are created. Win, win.
Anyhow, what about the claim that GDP would increase by nearly $13 billion in Alberta because of the Job Creation Tax Cut?
The most recent data I could find for Alberta was for January 2021, and that was published just this past May.
In January 2019, Alberta’s gross domestic product at basic prices was $334.2. In January 2021, the GDP sat at $323.1 billion. That’s a drop of $11.1 billion, not an increase of nearly $13 billion.
And sure, the pandemic didn’t help any, but in January 2020, two months before governments started enacting public health protection measure, the GDP had fallen $27.5 billion to $307.5 billion.
But, maybe Alberta’s GDP will have increased by $24.1 billion by the time the 2022 GDP data comes out next spring. Right?
It seems to me that the so-called Job Creation Tax Cut didn’t do what Mintz and Dahlby—both economics professors who have published articles with The Fraser Institute—promised it would.
Almost as if the job creation tax cut wasn’t about creating jobs after all, but about making sure corporations had more profits.