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The whole furor over corporate tax cuts as a policy in stimulating business investments and thus creating jobs has been proven false. Like a Potemkin village, it is purely an imaginary cardboard likeness, but has nothing to do with reality. Republicans and their Tea Party cohorts – the anti -tax zealots -- may shout their convoluted rhetoric, but it is empty wind.

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We now have one of the most definitive and comprehensive studies of the impact on tax reductions on business investment and job creation that has ever been completed.

This study, done by Jim Stanford, an economist with the Canadian Auto Workers and a research associate at the Canadian Center for Policy Alternatives, is entitled, “Having Their Cake and Eating It Too – Business, Profits, Taxes and Investments in Canada 1961 Through 1010.”

Stanford has done one of the most thorough and detailed studies of the economic experience in Canada, with respect to tax cuts on business investment and its impact on Canadian employment. His study also contains an exhaustive examination of the work done by other economists across a broad spectrum of ideological beliefs on the same subject.

His most significant findings are as follows:

“Since the first of several rounds of business tax reforms and reductions was implemented in 1988, business investment has declined one full percentage point of GDP – even though after tax business cash flow has increased (in part as a direct result of tax reforms) by 3 – 4 percentage points of GDP.

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Since 2001 Canadian corporations have received a cumulative total of $745 billion in after tax cash flow, which they have not reinvested in Canadian fixed non-residential projects.”

Nor has it increased employment opportunities for Canadians.

Even after this series of major tax cuts to Canadian corporations, the amount of new investments was slight. “The study showed that a 3 point reduction in corporate tax rates would at best stimulate about 600 million in new investments.” A comparable investment in these tax dollars in infrastructure development would generate 6 billion and a concurrent increase in employment.

“Stanford shows that business investment decisions are more dependent on GDP performance, interest rates, exchange rates and oil prices than to cash flow.”

This Canadian study shows that as far as creating new jobs and generally decreasing unemployment, the way to go is increasing governmental infrastructure expenditures. In addition, these expenditures would spur an added increment of private investment. As employment and wages increase, there is greater likelihood for increased consumer expenditures for services, food, homes and products.

sy slavin

Sy Slavin, Ph.D.
Director, Kentucky Labor Institute