Tax Cuts and Other Myths

Ontario’s Legislature returns to business on September 24th and the province’s wealthiest individuals and corporations are starting to lick their chops waiting for yet another big tax cut. They’re also looking forward to the evisceration of recently won gains for working people.
Premier Ford is about to take another yellowing page or two out of the Donald Trump playbook. The Conservatives have pledged to cut corporate tax rates from 11.5 per cent to 10.5 per cent. As well, the government has said it will cut taxes for the so-called little guy. Of course, that depends on how you define the “little guy.”
But it’s not all it seems. Sheila Block, a senior economist with the Canadian Centre for Policy Alternatives, has calculated that somebody making between $39,000 and $49,000 will save a whopping $18 annually. Compare that to someone making who is making more than $109,000 who will come out more than $1,168 ahead.
The theory that tax cuts create a new-found wealth that will somehow trickle down to the rest of society is an old one that’s never been proven correct.  It is not the only theory that allows economic inequity to exist but it is one with an amazing shelf life that defies reality.
We need only look at a recently released report by the Roosevelt Institute which examined the latest U.S. tax cuts and found that from 2015 to 2017, U.S. companies spent 60 percent of their increased profits thanks to tax cuts – found money - on buying back their own shares, rather than investing that money in new ventures or pay hikes.
More disturbingly, the report looked at how some of those companies could have actually spread that windfall around. For example, McDonald's could have paid its 1.9 million workers almost $4,000 more a year. ​Starbucks could have given every worker a $7,000 raise and Lowes, CVS and Home Depot could have each given their workers raises of at least $18,000 a year. That’s a lot more than a trickle. Just think of the effect of all that money available for spending in local communities.
This disconnect is not limited to south of the border. In Canada, we also have a seriously flawed system aided and abetted by another limited theory about how economic success is measured. 
Understandable confusion is created when we hear reports of a booming stock market, massive corporate bonuses and political chest thumping about how well the overall economy is performing. While at the same time, Bloomberg’s reports that a "staggering" number of Canadians are on the brink of financial disaster. We also continue to see massive student debt which serves to deny young people full participation in the economy and a record number of families are barely surviving pay cheque to pay cheque.
Ten years ago, France created a Commission on the Measurement of Economic Performance and Social Progress to examine methods for assessing economic performance and social progress. The authors of its report blame the disconnect on the use of Gross Domestic Product (GDP) as the measurement of economic well-being. They advocate a shift of emphasis from a “production-oriented” measurement system to one focused on the well-being of current and future generations.
Their report notes that emphasizing well-being is important because there appears to be a gap between the information contained in GDP data and what counts for common people’s well-being. In other words, measuring economic performance against how well the wealthiest are doing distorts a valid assessment of well-being and allows those with power to ignore the plight of those at the bottom of the economic ladder.
No single measure can summarize something as complex as the well-being of people. Any system of measurement needs to include a range of different measures.
The Commission report wisely recommends that when evaluating material well-being, we need to include an assessment of material living standards, health, education, personal activities including work, political voice and governance, social connections and relationships, environment and insecurity, of an economic as well as a physical nature.
Facts are our friends but only if we consider all the facts. Said the Commission, “What we measure affects what we do; and if our measurements are flawed, decisions may be distorted.
Using defective economic theories and incomplete measures will only lead to decisions that will be harmful to Ontarians. We’ve been warned.

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