I’ve been engaging with conservatives recently when they’ve been claiming that tax breaks lead to more jobs.
As I’ve shown them evidence that companies who receive tax breaks don’t hire more people when compared to hiring prior to the tax break, I’ve noticed an interesting trend: they start shifting the goalposts. Their claim moves to one of indirect job creation.
So where they were previously claiming that companies that get more tax breaks hire more people, now their claim is becoming that companies who get a tax break spend more money, and the vendors where they spend that money create jobs to accommodate demand.
Here are some things I see wrong with this rhetorical adjustment.
First, they’re already spending a bunch of money. That’s what expenses are: everything they spend money on. And often they spend more money on expenses than they make in profit.
For example, in the last quarter of 2018, Loblaws made $11.218 billion. Their operating income for the same period was $445 million. That means their expenses were about $10.773 billion. So, they’re already spending nearly $11 billion: to employees, to vendors, whatever. That money is already in the economy.
Now, let’s say that this company operated out of Alberta and met all the requirements for having to pay the corporate tax rate in Alberta, which is 12% but will soon drop to 8%. If my understanding of corporate income tax is correct, they’d pay 12% of their operating income, or $53.4 million. When it changes to 8%, they’ll pay $35.6 million instead, which means they’ll keep $17.8 million more than they had been.
Whereas, they were injecting $10.773 billion into the economy previously, now they’ll get to inject $10.791 billion into the economy.
Maybe it’s just me, but this increase doesn’t seem like it would lead to the creation of significantly more jobs than they’re already creating indirectly.
Second, I agree with the idea that spending more money leads to more jobs. After all, if companies have no customers to buy their products or services, they’ll go out of business. But it’s increased demand, not increased profits, that leads to more jobs. Theoretically, a corporation can have profit and not even spend it, so higher profit isn’t even a guarantee that the economy will see higher spending.
Third, governments spend money. They don’t hoard the taxes they collect; they spend them: on building and maintaining highways, on building schools, on staffing emergency rooms, on paying utilities for government buildings, and so on. All of those require labour, which means jobs. So while it may be true that lower taxes will lead to more money available to a company for spending, potentially creating additional indirect jobs, higher taxes also create additional jobs because that money is now being spent by the government instead of by the company.
Which actually leads to this question: if Loblaws, hypothetically speaking, has $17.8 million more to spend in the economy but the government has $17.8 million less to spend in the economy, will the tax cut lead to a net increase in jobs, or will the number of jobs simply remain the same but just change where in the economy they reside?
Fourth, if you agree that tax cuts will lead to more jobs because companies have more money to spend, does that mean you agree in a higher minimum wage? After all, if workers have more money to spend, wouldn’t that also lead to more jobs?
Frankly, I don’t buy this change in rhetoric anymore than I bought their previous version.
