Proactive disclosure -

Proactive disclosure


Stephen Gordon has put together a valuable primer ahead of what probably should be a national discussion on taxes and the federal treasury.

Now, I’m as happy as the next person – okay, probably happier than the next person – to talk about corporate income tax policy. What worries me is that the quality of public debate on this topic is likely to be no better than that of the climate change file in the last election. For pretty much the entire 2008 campaign, reporting on climate change policy  – with all-too-rare exceptions – took the form of he-said-she-said, opinions-differ-on-the-shape-of-the-earth stories that made no reference to the scholarly literature. By the time academic economists intervened with this open letter a week before the election, it was too late: the damage had already been done.


Proactive disclosure

  1. Carbon taxes are only part of the picture, and the lowest cost method of addressing climate change isn't necessarily the fairest or the most effective.

    In an affluent convenience-based society, pricing measures don't necessarily move consumer behaviour. For instance, many Canadians already spend more on their cars than on their housing and food. We already have gas taxes that rise up with prices, but the impact of increases on consumption is only temporary.

    Economic instruments should be part of a system of incentives and disincentives along with aggressive investment in conservation, eco-efficiency standards, and regulation.

    Why regulation? Because many large emitters, and whole sectors will continue to chase short term profits and fail to invest in eco-efficiency measures that produce actual ghg reductions.

    Anyone who believes that most corporations will do what it makes economic sense to do over the long term, weren't paying attention for the real estate bubble, the bubble, or any number of accounting, insider trading and fraud scandals from Enron to Hollinger.

    • pricing measures don't necessarily move consumer behaviour

      If we're talking about single-figures and cents, sure. But tell someone their hydro bill is going up 40% and they'll be sure to jump. (Most wonder, however, if they really can do anything more themselves to save energy/costs.)

      Also, when it comes to all sorts of green initiatives, price sensitivity is the single most important factor determining uptake. That's why, as you suggest, a system of incentives and disincentives are key – not just for large corporate/industrial emitters, but also consumers.

      • Our EnergyStar windows will be installed in 2 weeks. We are also replacing our siding and adding 1-1/2" extruded polystyrene under the siding. Have bought 3/6 lt. caroma toilets. We had an energy audit done, just before the cons cancelled the program. We were at a 73% efficiency rating and will likely achieve an 82% efficiency rating.once our renos are completed. We pay the 2nd highest rates hydro rates in the country. That sure is an incentive to reduce our energy bills. You can be sure those incentives helped us to make up our minds and bite the bullet. And, we'll pay cash for these renos as we paid off our house years ago and have zero debts. We also put in an air/heat exchange several years ago as we live in a damp climate. I'm very energy use conscious (sp?). Hang clothes out to dry in the summer, etc., etc. and we have a big recycling program where I live.

      • LynnTo… may be right but it is the middle class that will bear the costs of green intiatives as you suggest.

        When it comes to it the vast majority of Canadians will not agree to higher taxes and having their current standard of living eroded further. Might I remind you that consumers are in hock up to $40,000 each in this country. That has to be paid back and taxing them further no matter how well meaning will not help them repay that debt and will not be welcomed.

        We can tax corporations to death. They may change their ways but probably will just include their new taxes within the price of goods. That's why a carbon tax is a tax on everything and other than the envirofascists ordinary Canadians will object strenuously.

        God if we can't even introduce the HST in Ontario and B.C. without a tax revolt can you imagine the reaction with a proposed a tax on everything in addition to the HST?

        Chretien knew that and that is why he avoided implemented Kyoto like the plague.

    • A bunch of gobbledy gook. If you raise energy prices, consumption will fall. It's just that simple. Improving efficiency lowers energy prices, and increases consumption. Witness the doubling in average home size. Improvements in efficiency must be matched with rises in price for energy. As a bonus, there is no need to pick winners, subsidize ineffective retrofits, etc. and we can use the proceeds to lower other taxes that are economically harmful, such as income taxes, and ameliorate the regressivity of carbon taxes by giving money to poor people, a la GST rebate.

      • You'll have to explain why people drive more now than 5 years ago, since the price of energy has gone up dramatically. Motorists don't necessarily behave economically because they are willing to waste and pay more for convenience and status and style. Or didn't the energy costs increase enough? What's the tipping point?

        Also, raising the cost of gasoline isn't going to reduce emissions from inefficient lawn mowers, pleasure boats, ATV's and snowmobiles because those are already pleasure expenditures, and the gasoline costs are marginal compared to the overall cost of the "hobby." The ratio of ghg's per litre of gasoline is massive, in comparison to automobiles, however and those machines need to be better regulated.

        Raising the energy cost isn't going to do anything for people who have older houses and no capital to invest in improvements. That's where some of the revenue from taxes could be used. All I'm saying is that arguments about the best economic instruments are getting in the way of actual, practical action on climate change and we need a menu of solutions, not just pricing.

        • "You'll have to explain why people drive more now than 5 years ago, since the price of energy has gone up dramatically."

          Oil consumption dropped considerably during the spike in oil prices in the summer/fall of 2008 (i.e. the summer of $1.40/L gas) During that spike, I got into the habit of reading the weekly reports, and it was very common to see most weeks that oil reserves increased more than predicted due to low consumer demand. Furthermore, we all remember that summer and into the next year SUV sales dropped considerably and small car sales grew.

          This would suggest there may indeed be a tipping point at which point consumer behaviour would change.

          • and then change back again

          • Hard to tell. The prices dropped back down again.

          • Agree with Thwim. It changed back again because prices dropped. Oil hasn't returned to $147/barrel since. If it does approach that level again, people may indeed conserve/change their behaviour again.

  2. Thank you so much for that "exceptions" link. Explaining why a carbon tax is both effective at combating emissions, is the most economically conservative way to go about it, and is beneficial (provided other taxes are cut to compensate) even without considering climate change can be exceedingly tedious.

    A concise, accurate rundown from a news organisation on a what can seem to be complex subject like this is simply wonderful to see – I'm bookmarking that.

  3. Komarade Wherry Global Warming is a HOAX get over it……

    • Why is global warming the only issue such a policy could address? The world's oil supplies are dwindling, and the remaining supplies are difficult/harmful to access (offshore, oilsands, ANWAR, oil shale, etc.). Increasing the price of carbon can aid in conservation of oil reserves and speed up the transition to other sources of energy by reducing their price relative to carbon-based fuels.

    • Your tin-foil hat, JoeFrmEdm, is interfering with your spell-check software.

  4. beauty link


  5. The corporate tax cut god has died. Economists refuse to even acknowledge it. How much longer must we continue this failed policy? Is copying the bankrupt Ireland with it's mirage GDP really so important?

  6. I can answer the question that seems to be on Stephen Gordon's mind, namely:

    Can we have an adult, non-stupid debate on corporate tax policy?

    The answer is: no, there is no possibility of this happening.

  7. Canada has to have lower corporate taxes than the rest, to attract investment.
    And there was a time when that was a Liberal talking point too.
    Dreams of getting back into government by seducing the NDP has made them all Dippers.

    • That's a crock. Lowest corporate taxes in the world are in Ireland and Iceland right now.. are you saying we need to put ourselves in their position?

      Reality is thus: Corporate taxes matter very little, because the costs get passed on to the consumer anyway.

  8. An unbiased member of the media would be doing a copy paste on Liberal MP Derek Lee saying that committee is no place to answer questions about his own unregistered lobby activities….
    funny how Liberals still, after 4.5 years in opposition, think they are permitted to do what they demand the Conservative government does not do, eh

    • An unbiased member of the media would have reported Derek Lee's argument that the committee with the proper mandate to ask those questions is the Ethics committee, not the Government Operations committee at which he was called to appear at this morning. Indeed, the article you reference does cite this. Mr. Lee reasonably advised that the committee's report may have been rejected by the speaker if it did not stay within its mandate. Why you believe that the committee should produce an inadmissible report, I don't know.

      Don't interpret this as a defense of the Liberals; why they didn't make this argument from the get go is a mystery to me (they voted for the motion for Mr. Lee to appear, not against).

  9. Aaron….based on your comments I suspect that you thought the Dion/Iffy carbon tax was the way to go. However, when Dion couldn't tell anybody how much GHGs would be reduced by over 5 years and had nearly half of the $40 billion to be raised going to social justice/engineering initiatives which had nothing to do with the environment most Canadians felt it wasn't a serious envrionment policy but simply a way to raise money so the Libs had some money to spend on their pet projects.
    Dion and the Libs defeated themsleves because of a bad policy with was incapable of being explained during an election campaign.

  10. You may want to direct your last point to the poster I was replying to, who was saying that we need lower corporate taxes to attract investment. My point was simple. Lower corporate taxes don't do a lot to attract or repel investment — other factors (such as an educated and healthy workforce) are much more important.

    Incidentally, your theory relies almost entirely on the idea that government services would not offer even greater benefits to Canadians. Considering that the two things I list above, an educated and healthy workforce are often best driven by government servcies, that's a pretty large assumption to be making,. Add to that one of your benefits, higher wages, may or may not be beneficial. If it's higher wages purely for the managers of the firm, increasing the divide between rich and poor, then higher wages are not necessarily a good thing.

    The ideal corporate tax would be one that is able to tax economies of scale — thus levelling the playing field for competition. But I've no idea how exactly to set up a system that can fairly recognize, never mind tax, a companies economies of scale.

    • Firstly, I agree with you that the competitive argument is facile and self-defeating. Corporations locate for many reasons other than just corporate tax rates, which is why most are not located in the Cayman Islands.

      Secondly, IF government services need to be improved (I would argue that our education system is actually pretty good), why use corporate taxes over other forms of taxation? If your beef is that there is too much inequality, corporate taxes are a poor avenue to address this, since they are often passed onto consumers in the form of higher prices (and since poor people spend a greater % of their income, they are more impacted by prices). Income taxes would make a lot more sense.

      I am also not sure that taxing economies of scale would be a good idea at all. Part of the problem is that in some industries, economies of scale are quite pronounced. For instance, in aerospace, doubling production lowers per unit costs by about 20%. Those productive advantages more than compensate for any adverse effects from the resulting oligopoly in aerospace production (I assume that you beef with economies of scale is they they make it such that an industry will have few competitors). Indeed, an oligopolistic industry may be more advantageous in the long-run, because they will have the necessary capital to invest in R&D with limited redundant duplication. Over the long haul the ability of a firm to reduce costs year in and year out is much more important than one-time competitive effects.

      Nor are oligopolistic firms always uncompetitive. Heck, even monopolies may avoid exploiting their monopoly position for fear of encouraging market entry from competitors.