The only way conservative governments can increase corporate profits is to decrease corporate taxes. After all, corporate taxes are based on how much profit your company makes. The higher your profits, the more you pay in taxes.
For example, let’s say your corporate profits in a tax year are $1 billion.
If the corporate tax rate is 12%, then you’d theoretically pay $120 million, leaving you with $0.88 billion in profits instead of $1 billion. If the tax rate is 8%, then you’d theoretically pay $80 million, leaving you with $0.92 billion in profits instead of $1 billion. You’d have an extra $40 million in profits under the lower tax rate.
The problem with lowering corporate tax rates is that it lowers provincial revenue.
In the 2018–2019 Alberta budget, when the tax rate was 12%, corporate tax revenue was $4.97 billion. As of the most recent fiscal update, corporate tax revenue was forecasted to be $4.39 billion. And that’s with 12% April to June, 11% July to December, and 10% January to March.
That’s a loss of $580 million.
And if you campaign on balanced budgets, the only way to accommodate reduced revenues is to decrease expenses. In this case, the provincial government would have to find a way to cut $580 million from the budget.
Conservative governments don’t cut healthcare because they hate public healthcare or that they think private healthcare is better. They cut healthcare because they have less revenue from their tax cuts to increase corporate profits. They bring in private healthcare as a way to continue offering healthcare while they reduce funding for healthcare.
They don’t cut education because they hate public education or that they think private education is better. They cut education because they have less revenue from their tax cuts to increase corporate profits. They bring in private education as a way to continue offering education while they reduce funding for education. Same goes for larger classroom sizes, increase school fees, and so on.
They don’t cut postsecondary funding because they hate postsecondary education. They cut postsecondary education because they have less revenue from their tax cuts to increase corporate profits. Same goes for tuition increases and the commercialization of postsecondary education.
They don’t use private-public partnerships because they hate funding public infrastructure or they think private enterprise is better at public infrastructure. They use private-public partnerships because they have less revenue from their tax cuts to increase corporate profits.
And so on.
You see, conservative governments cut expenses because they need to save money from reduced revenues, which are reduced because of their tax cuts, which are cut to increase profits for companies.
That’s it. That’s the whole story.
2 replies on “Conservative governments cut taxes to increase corporate profit”
I think that’s a bit simplistic Kim, and also incomplete. Yes cutting taxes means cuts to all these other things, which you and I agree are bad, but I don’t think you have proved your headline. You explained the consequences of the cuts, but not the rationale.
Why do these fiscal conservatives cut corporate taxes? There are lots of reasons in my experience why these apparently otherwise intelligent people believe this is a good thing. Some of them buy the “supply side economics” (aka trickle down economics) view, that when the rich get richer so do everyone else. Of course it’s not true, not only it not supported by economists these days, but also proven wrong in many real world failures, and yet conservatives actually believe it.
Some conservatives philosophically disagree with the role of government in the provision of services. This is worse of course – it’s deliberately undercutting the social obligation the government has to support the whole of society. You and I both know the purpose of government is to support society by providing infrastructure, education, health care, child care, mental health services and support for a range of other “non econmic” goodness, as well us underpinning a stable and fair economy, that only the government can do. Government has an obligations to do these things for now, for those of us here now and for the future generations who will benefit from the fiscal, physical and social investment.
Undercutting the social imperative of government is not accidental for extreme right conservatives, it’s deliberate! And don’t forget “it’s not a lie if you believe it” to quote George Constanza. Sad to say hard right conservatives actually believe this drivel (aka. dribble).
Ralph Klein said “The government should be getting out of the business of being in business” – yes true, but these tax cuts are also about getting the government out of the business of providing a fair and just society providing support for the worst off and assistance to those who need it when they need it for the common good. It’s not accidental.
It’s a strategy.
Yes, it is a strategy. Their strategy is to maximize profits for private companies.