Thursday, April 8, 2010

Newspaper Clippings: Are tax cuts best for the struggling economy?

I say ‘struggling’ because everyone and their brother is saying we’ll not see normal growth for a long time, and by ‘normal’ I mean 3% growth, a number Canadians got used to during the good years. And by ‘good’ I mean the years the like of which we may never see again.


Now, to answer the question: Yes and no. Depends on who you listen to.

According to ‘Tax cut benefits debated by groups’ (Apr. 1, London Free Press), the answer is ‘yes’ if you believe the Fraser Institute when it says “the federal government’s $62-billion stimulus plan did little to spur growth and permanent tax reductions would have been more effective.”

But the answer is ‘no’ if you believe the Conference Board of Canada when t says “tax cuts can be given out quickly but the impact on the economy tends to be short-lived and muted, whereas infrastructure spending takes longer to get underway but provides bigger bang for the buck.”


["Tax cuts? Not enough benefit!"]

In my humble opinion, the conference board wins the argument (i.e., tax cuts are not the way to go) because they substantiate their claim by saying that “for every dollar spent on cutting taxes, real GDP is expected to increase by 30 cents (for corporate tax cuts) and 40 cents (for personal tax cuts) and those benefits pale in comparison to the $1.20 gain for every dollar spent on building roads, bridges, facilities and the like.”

Plus - and this is a big plus, in my opinion - “as far as tax cuts are concerned, you can’t force consumers to spend this extra money in their pockets,” say the Conference Board.

So, if I was King for a Day, I’d say, “Forget the tax cuts, people. We have to face reality and get more people back to work. You want more money in your pocket, here’s what you do. Reduce spending.”


["Don't sink the pig. Save money"]

Then I’d add, “And for crying out loud, pay down your debt and start saving money for the tough times ahead.”

And because our national debt is rising faster than almost ever before, and we are very unlikely ever to pay any of it down, there will be tough times ahead.

***

How about a 1/4 of 1 per cent tax increase (personal and corporate) dedicated to pay down national debt?

.

2 comments:

Lost Motorcyclist said...

I agree with you. Stimulus money tends to be spent on things we need such as jobs, road repair, schools, other infrastructure. Tax cuts are spent on junk and toys mostly, like flashy SUV's, monster homes, packaged foods, big screen TV's etc. Sadly, people are not very wise with their spending these days. Putting more money in their (our) pockets is like giving money to a 2 year old. It would be far wiser to have more hospitals, public transport, health services instead.

G. Harrison said...

I feel tax cuts are over-rated in a country in which debt is growing nationally, provincially and individually. "Like giving money to a 2 year old" is right!

GH