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Taxes, the CEOs, and securing a Canadian economic edge


 

The most interesting thing about this story is not that Ed Clark, the CEO of TD Bank, is calling for tax increases to fight the federal budget deficit, although that’s pretty interesting. It’s not even that the Prime Minister’s Office lashed out at Clark’s perfectly reasonable position as though he’d said something plainly offensive, although the PMO’s response made quite a spectacle.

No, the most intriguing part is the little glimpse Clark offers of the mindset of Canadian corporate heavyweights, when he apparently revealed how at a recent meeting of the Council of Chief Executives—the club of the country’s 150 top CEOs—”almost every single person said raise my taxes.”

This might sound odd, but it actually makes a lot of sense. Business generally likes lower taxes. But in the current international climate, it’s becoming increasingly obvious that a country with its fiscal house in order—even if that means higher taxation—is going to gain a clear advantage over less resolute economic rivals.

This is the message from Europe, where Greece’s deficit and debt crisis has already made markets jittery of other countries deep in the red, like Spain, Portugal, Ireland, and perhaps Britain. Higher taxes seem inevitable if those countries are going to restore their reputations as sound places to invest.

And the huge deficits for years to come projected by the recent Barack Obama budget makes it look obvious that Americans will have to get over their phobia about tax hikes. Sooner or later. One way or the other. This stray sentence from a recent New York Times story popped out at me: “The assumption is that somehow, for example, Medicare costs will have to be controlled, or that new taxes will help pay for them.”

Ed Clark and all those other CEOs know the folly that’s unfolding in Washington and parts of Europe. Canada isn’t facing anything like those deficit pressures. Keeping it that way is the challenge. The debate is over how to do it: by spending cuts alone, which looks extremely hard, or by modest tax increases or at least postponing tax cuts, which looks a lot more manageable.

It’s fascinating if Clark is right that  Canada’s business elite already sees it that way. It would be useful if some of them would go public with that perspective. Politicians who at least recognize the need for an honest debate about taxation might follow the lead of Gerard Kennedy, who surely deserves credit for speaking openly about what a lot of other MPs only muse about in private.


 

Taxes, the CEOs, and securing a Canadian economic edge

  1. The key words in your article: "less *resolute* economic rivals." And the problem is, Harper has not been resolute at all. He's been ducking, bending and preening, but never leading in any of this. The stimulus? "Iggy made me do it." The recession? Didn't happen until he was forced to admit it. Banks? They're fine, and so is the housing bubble – why anticipate greater damage? And now with the deficit, it's "we'll cut it – just wait (until after you give me a majority)."

    If you don't want to govern, get out of the way and let someone who will govern take charge.

  2. Geddes seems to be a big fan of not lowering corporate taxes for some reason everyone though countries such as Switzerland and the Netherland have lower rates than Canada. This is second time he has brought this up. Even most of the Liberal party wants to continue to cut the corporate rate.

    • Corporate tax rates are fairly low in Canada, and I support them going lower. In most provinces, combined fed and provincial corporate tax rates are going to come down to 25%, while Geddes suggests only 28%. Not exactly earth shattering.

      I think a good model for taxation in Canada is low corporate tax rates, moderate personal income tax rates and high-ish consumption taxes (offset with transfers to the poor), as well as user-pay for scarce, valuable public services such as electricity, water, and highway use (ie, road tolling). Taxing corporations only chases investment out of Canada, and less investment means less productive capacity for wealth creation in Canada and ultimately lower wages.

      • Where do I sign the petition to get you to be Finance Minister? You are totally after my heart on this…

    • How about we don't raise the payroll taxes and keep the corporate tax rates where they are? Why is this not universally recognized? Corporations only pay corporate tax when they've made a profit–when they can afford to pay taxes because they have some money. Corporations must pay payroll taxes whether they make money or not–as long as they have employees. We WANT corporations to have employees. We DON'T WANT corporations to go bankrupt because they can't afford their employees, therefore can't afford to stay in business. Sure, we also want them to make a profit, but profitable companies will make A profit whether they're tax rate is a percentage higher or not. They will make, possibly, a greater profit if their payroll taxes are lowered, depending on specific circumstances. You could even look at it as the more employees they have, the more money they will save. (The more employees, the greater tax-paying workforce, ergo, more revenue to CRA) So this little plan of mine seems to be win, win, win. Somebody, please, tell me why nobody is looking at this.

  3. I actually don't think that the key issue is raising taxes… in Clark's words "Get this deficit done". The only sustainable way for a government to lower taxes on an ongoing basis is to consistently run a surplus, and the only practical way to rapidly eliminate the deficit is through tax increases.

    • There is a spending side to the equation Stewart. Why do people keep forgetting that?

      As for deficit elimination, now that the consensus for this exists, which wasnt the case even in 1993….the actual most rapid and sustainable way to eliminate it is to find those things to generate incremental points of GDP. The federal government gets about 15% of the GDP in tax revenue (220 Bill on 1400 Bill)

      Each 1% increase in GDP is worth an additional 2.1 Bill in tax revenue every year. So dont you think the more sustainable way is to eliminate barriers to growth. The PBO estimate that 5 years out we have a structural deficit of 19 bill (I think). The sensitivity on that figure is high, GDP being underestimated by .75% per year eliminates that deficit. Or a scenario that includes them underestimating years 3, 4 and 5 by 2% 1% and 1% respectively. You cant count on it, because no economist places any great certainty on their predctions 3 years out. Control what you can, which is spending, eliminate the barriers and inefficiencies….Tax increase are a short term salve……Look at Greece or any of the other PIIGS (Portugal, Italy, Ireland, Greece, Spain)

      • Doesn't this ignore that taxes, within reason, support services that can also enable growth? For example, our health care system arguably provides a more stable workforce, in the long run. Infrastructure would be another case of a tax-supported domain that directly enhances our economic growth. Policing and security, education… not all taxes disappear into a black hole with no general benefit realized.

        I'm not saying taxes aren't an important part of the equation, but I'm not comfortable with them being strictly described as barriers. Has anyone demonstrated that the GST cut had a measurable impact on growth, for example?

        • Fair enough certain types of public investment make sense and are useful, and I am not saying eliminate taxes by the way. But we are talking how do we eliminate a deficit…raising taxes is a simplistic answer, sometimes necessary. What I was pointing out was that a 19 Billion estimated deficit 5 years out is in some context a rounding error, it is on the wrong side of the rounding and if we underperform that deficit risks snowballing. But contorlling what you can control, spending can clamped down….as Coyne points out, even if you just kept INCREASES to a level matching pop growth and inflation you would put a serious dent into things.

          All I am saying is before you raise overall taxes you should think twice, maybe three times, about other alternatives. Some of them yield bigger compunded results. Tax increases should be the last resort (unless you are talking about extermnalities but thats a different story).

          • Thanks for the thoughtful reply!

            I am certainly in favour of a careful consideration of all spending before tax increases. I'm guessing this is where party-based politics are going to let us down in a bad way, in that I don't anticipate a particularly rational and considered approach to cuts (from either the Cons or Libs). However, I always remain open to being proven wrong.

  4. I'm glad that more people are coming back to the realization that debt and deficit are a problem after the madness of last year. I don't see why this should continue to be a controversy. You can disagree on the size of the government, but no matter what government you choose, you have to pay for it. So if you want a large government, raise taxes. If you want a small government, cut entitlements and services.

    • What if I don't care about the size of the government, I just want proper value for my tax dollars?

      • Then you should probably want a smaller-sized government. Bloating the beast is a sure-fire way to erode value.

        • Agreed. Governments are by their nature inefficient. If you want value, then all we should ask of government is to do only those things that governments must do because nobody else can.

          • As long as we can agree that there are things that government must do, and what those things are. I am fine with letting the market take care of rationing goods and services so long as it doesn’t result in market failure (avoid this with good regulation or less desirably through public provision) or too much inequity. Equity can be corrected for by transfers to the poor.

            Everyone, both left and right, should be supportive of efficient government. Efficiency means we get more bang for the public spending buck, which is good whether you love or hate government intervention. Same goes for taxation. There are efficient ways of raising revenue without causing undue economic loss or creating perverse/undesirable incentives. We should all be able to agree on that–it’s an academic question. The real debate is on size of government, and what goods/services can be provided privately without market failure (say, electricity, health care, education), and what degree of inequality in our society is acceptable.

    • In the PMOs reply to Clark, they not only said they wouldn't raise taxes but also wouldn't cut transfers.

  5. Whether you live in a high tax country or low tax country the budget must be balanced. I know that many think that government are just good at wasting money but I can't think a better way for my government than having a large portion of the money they do take (tax) from than to turn around and pay interest on a huge debt. It might make some people rich but it makes all taxpayers poorer as theses moneys are not used to pay for services or for infrastructures. There is no free lunch no mater how hard people scream at tea parties.

  6. Red Ed is well remembered out west.

    • It's hard to believe he ever got another job after lowering global gas prices 30 years ago.

      • What's your point about Michael Phelps?

        • Also deep NEP roots as per "Red" Ed Clark. Vilify one, then vilify all. Same with that McKittrick guy that the hockey stick climate change deniers embrace.

          • Why must you drag world-famous Olympian Michael Phelps into this sorry dispute? Surely a swimmer who won 14 gold medals doesn't deserve to be vilified like some uppity banker. ;-)

    • Red Ed is well remembered out west.

      Not by Harper, it appears. Why would the Prime Minister invite such an awful person to private budget consultations?

  7. It's fascinating if Clark is right that Canada's business elite already sees it that way. It would be useful if some of them would go public with that perspective.

    After the PMO's response today, I'd say it's doubtful that will happen.

    • What does Canada's business elite have to fear from PMO? A few press releases would make PMO look pretty silly, or at least dispel the weird myth that the CPC is viewed favourably on Bay Street.

      • Well for one thing, Mr. Clark said that he (of the $11 million a year) and many of his fellow travelers in the Canadian Council of Chief Executives (a pretty well heeled bunch) thought that they'd be more than accepting of having THEIR taxes raised to help slay the deficit, and it took the PMO less than a day to claim that this was some kind of covert attempt by the CEO of TD Bank to help Michale Ignatieff "justify massive tax hikes for 'working- and middle-class Canadians'". I'm not sure if I were a CEO of a major Canadian company that I'd want to risk the Prime Minister's Office accusing me of advocating for tax increases for low and middle class Canadians who make up my customer base just because I thought my OWN taxes should be higher, and I dared to say so in public.

        A rich person saying that he thinks maybe he and his fellow rich people could afford to pay more in taxes to help slay the deficit is only a safe proposition for risk averse CEOs until the Prime Minister's cronies start twisting it into "He wants ordinary Canadians to pay more taxes!!!".

        • Are you implying that the the bank CEOs were actually suggesting the government raise only their taxes and not ours?

      • Ed is an obvious exception to the negative-media-adverse corporate bosses (can't blame them).
        Hey, that's likely why he got to carry the heavy baggage … errr…. be head of this council.

        • I thought that was what John Manley was for doin' …

  8. I wish to god that we could have a serious discussion about taxes, but few of our fellow citizens ever want to hear anything but that their taxes are being decreased and services increased.

    I also wish that we'd seriously consider a carbon tax accompanied by tax cuts (some corporate, also a serious increase on the basic personal exemption).

    • The public dialogue on taxes has been dumbed down to the absurd. We keep rewarding our politicians for lying to us.

      Indeed consider the HST farce as it unfolded in Ottawa, BC and Ontario.
      For a while the HST was the miracle baby born out of thin air without a parent to claim maternity or paternity in sight.
      It is still occluded in the public mind, with opponents not sure to blame Ottawa or their own provincial gov't for the new style tax. The HST is in fact a very rational replacement of the GST & provincial tax, just as the carbon tax is the most efficient way to change our carbon footprint.

      But we entered a "read my lip: no new taxes" cartoon universe a long time ago. Sigh ….

    • Increase the basic exemption? OK. Can we then do away with the micromanaging "retail politics" nonsense of transit pass and kid's soccer credits? Can we shake on that?

      • That's not how Stephen Harper envisions winning your heart and trapping your so-con soul…

      • Yes, (to increasing the personal exemptions). And the other changes would be the first step to truly simplifying the tax laws/forms, instead of the mostly 'for show' effort associated with reducing the number of tax brackets.

      • YES!

        • I'll have what she's having.

          • Who knew a simplified tax code could be so… exhilarating?

  9. It's fascinating if Clark is right that Canada's business elite already sees it that way. It would be useful if some of them would go public with that perspective. Politicians who at least recognize the need for an honest debate about taxation might follow the lead of Gerard Kennedy, who surely deserves credit for speaking openly about what a lot of other MPs only muse about in private.

    the Prime Minister's Office lashed out at Clark's perfectly reasonable position as though he'd said something plainly offensive

    these CEOs are no doubt big girls and boys and would not be new to the idea of vocal criticism and second guessing to be sure. but certainly seeing one of their colleagues getting dismissed by a hack for his perfectly reasonable position by the Prime Minister's Office, the principal policy making power in the country, can't engender much desire to go public let along attempt to initiate a open dialogue with Ottawa.

    • You seem to be predicting that they will be cowed by this. You don't get to be CEO of a major bank by being easily cowed. I think indignation and anger are more likely responses. Really, I'm rather astonished at how stupid it is to take a run at CEO for no good reason.

      • not predicting anything of the sort Andrew (not P or C). you might even note that i mentioned that CEOs are no doubt big girls and boys that would not be new to the idea of vocal criticism and second guessing to be sure. the point is that they don't need to be part of a public discussion of the issue. they have other levers of influence, most of which are stronger than their participation in a public discussion, not to mention the ongoing conversation between themselves. so the degree that the John is hoping for broader public participation of the group, why would these people bother, especially why bother engaging the idiots in the PMO.

  10. Can't we just impose a huge carbon tax, say $40/tonne CO2, and use the revenues from that tax to eliminate the structural deficit? Sure, higher fuel and energy costs would be passed on to consumers, a few industries might be crippled, a few jobs might be lost, and few Albertans would escape the consequences, but it would be a big hit with the international community. Think how virtuous we would look in the eyes of the world! I could finally sew that Canadian flag decal on my backpack again.

    • "If you have built castles in the air, your work need not be lost; that is where they should be. Now put the foundations under them."

      Walden, Henry David Thoreau

      • I really like this quote, btw.

    • By my calcs a CO2 tax of $40/tonne would increase the cost of a litre of gas for end consumers by about 7 cents. At my local stations that would put the cost at about 95 c/l, still well below the price of about $1.45 per litre from about a year and a half ago. Those prices did place some strains on some businesses, but overall people seemed to adjust fairy well, other than all the grumbling.

      Have I made a math error?

      • CO2 emissions are about 2.3 kg per litre of gasoline.

        $40.00*0.0023=$0.0092

        That puts it at 9.3 cents per litre, not counting the CO2 emissions from extracting, refining and transporting.

        • That would still leave us as one of the jurisdictions with the lowest fuel taxes in the OECD.

        • So an 11% increase in the cost of fuel. Hardly seems crippling.

          In fact, a quick back-of-the-envelope calculation:

          * 2,297,000 bbl/day petroleum consumed in Canada = 838,405,000 bbl/year
          * times 159litres/bbl = 133,306,395,000 litres per year consumed
          * times 9.3 cents/litre = $12,397,494,735 in annual revenues.

          Not bad. That would wipe out 1/2 to 2/3 of Harper's structural deficit.

          • If the fuel prices rose again to the levels we had a year and a half ago (or even surpassed it by 11%) we certainly can change and cope, but it would be very painful and that pain would be unequally distributed.

          • Painful indeed – but I think gas prices peaked at ~30% higher than current rates in 2008, so we wouldn't be hitting those heights.

          • 2006: Canada total CO2 emissions (including gasoline) = 544,680,000 tonnes.
            http://en.wikipedia.org/wiki/List_of_countries_by

            @$40 = $21.8 billion before adjustments/credits/offsets etc.

            Canada GDP ~ $1,400 billion

            So 21.8/1,400 = 1.6%

            How does that compare to a 2% GST cut?

          • It's quite close, actually – I think the 2% GST cut (actually a 28.5% cut) amounted to something like $12-15B in foregone federal revenues.

            Funny, in an attempt to be sarcastic, the frog's proposal was pretty reasonable.

          • I'm quirky that way. Sometimes I present serious ideas as sarcasm, or vice versa, all in the interests of furthering discussion.

          • Well played, sir!

          • According to Statscan, Canadian domestic sales of refined petroleum products are approx. 100 billion litres a year, so your back-of-the-envelope calculation of 133 billion litres is pretty close. You`re absolutely correct that this sort of end-user carbon tax on fuel would add at least $10 billion in annual revenues.

        • Ahhh yes, I located my error…something just over 10 cents per litre it is, after including the incidental costs.

          Would you consider the impact of such an increase to be crippling, barely noticeable or something in between?

          • Something in between. It certainly wouldn't be crippling.

          • Nope, my stat is per litre. From your own link, CO2 emissions 8.8kg per gallon of gasoline.

          • Oh wow, I'm dumb – I just took the C and not the O.

            Sorry.

  11. If Canada's highest income earners — CEOs like Ed Clark, top mandarins like Scott Clark and Peter DeVries, and senior news editors like Mr. Geddes — agree that their taxes should be raised, then by all means raise them. And fast! Of course, they need not wait on a government decree, they can voluntarily do so now!

    • Yes they can send a cheque to the government anytime, because they feel so strongly about it. Imagine if they all agreed to pay their bonuses for 2 years to cover the deficit……because they feel so strongly about it.

      Wont happen.

      • You’re not being fair. He has no incentive to act alone because its a prisoner’s dilemma. If he contributes more, it makes no real difference to the fiscal situation, and if anything, further justifies government inaction. But forcing all very high income Canadians to contribute more would make a difference, while giving a strong incentive not to defect (jail for tax evasion). He’s willing to give more if everyone else is, which is a perfectly defensible position. You’re not being fair for suggesting that he ought to act alone if he believes so strongly. It wouldn’t accomplish anything.

        • Well I was being tongue in cheek….however, I dont agree with your analysis. If he really thought it was important he and the 150 friends could make significant contributions. 2 years of bonuses, stock and cash from these guys add up to 100's of millions. The point being if he wishes to show leadership he can, and shrugging your shoulders and saying well it wont make a big difference is an abandonement of responsibility, assuming it is a deeply held conviction (he made it personal by saying he and his buddies all siad raise my taxes.)

          But the key is your word "forcing". Whether we like to admit or not taxes are coercive…now we largely agree on their existence and it amkes us feel better for fairness reasons knowing it isnt just us. BUT Ed Clark saying raise my taxes doesnt mean a heck of a lot, (as he earns more in a year than the average Canadian earns in a lifetime.) I just find it funny that when it is suggested that nothing is stops him from backing his words up then it somehow is useless and unfair.

          • Well, you and I could also contribute – there's a line on the income tax form for just such a purpose. And if every Canadian taxpayer voluntarily increased his taxes by just a nominal amount – say, $100 or $2 per week, it would be pretty significant.

            Will we? No, for the same reason Ed won't….we all believe we'd be the only one, and nobody wants to be taken for a chump by everyone else.

            And that's why taxes are coercive.

          • I find it funny that you think Ed Clark's income disqualifies him from having an opinion on Canadian fiscal policy.

          • It doesnt. I am just saying he can back up his opinion with action. What he is really trying to say is raise taxes on everyone. But that isnt what he said, he said "raise my taxes"….so he can back up his words with concrete action. I am just pointing out he is grandstanding, thats all, since a simple action on him the Ed Clark 150 could take action without having to wait for the govenrment. Begging off saying it wont make any difference is like me saying nobody misses my taxes either, so why should i pay them.

            It just isnt a compelling appeal, as they arent really sacrificing anything. Ed made it personal, and he shouldnt have….if he kept his opinion to the broader argument it would hold more water. Its faux sacrifice and a disturbing appeal to authority based on his wealth.

        • Nonsense. It's fair to say, particularly to the wealthy, "put your money where your mouth is!" I did not say that the rich ought to be "forced" to do anything. If they agree to pay more taxes, let them! Your coerciveness, Andrew, is what's unfair!

          • If we suggest that only those who see the value in paying taxes be the ones who pay them, soon the only ones who'll see the value in paying taxes will be those who can't afford them, while those who do not pay would receive the same benefits.

            Saying "You want it so much, you do it" is childish. It's ignoring the difficulties of the commons and the problems of short-sighted, self-interested people being the norm in our society.

  12. The Liberals used to be referred to as the – tax and spend Liberals, but the Conservatives are the forget-to-tax but spend more party. If the government doesn't increase taxes we will all have to pay and pay and pay for its inability to see anything but the remote possibility of a majority.

  13. The only conclusion I can draw is that Ed Clark and his cohorts see more benefit from feeding on increased tax revenues (recycled to them as government spending) than on increased consumer activity that wold result from lower government spending.

    • Believe or not, some of these folks recognize just how much a properly functioning society contributes to the well being of their community, businesses family and selves.
      Just because you and your ilk can't see past the end of your selfish noses don't go attributing your own base instincts to other more enlightened members of our society.

  14. One of the strangest parts about this whole debate is that we got into this deficit mess becasue the Liberals and NDP threatened to hijack the government unless spending was increased. The government responded with Canada's Economic Action Plan and now Ignatieff complains about the deficit. He cannot have it both ways. At least the NDP never pretended not to be a party of big time spending.

    Sure, we will probably need to raise taxes as part of the solution. However, first and foremost we need to look at spending. Every discussion should start with spending and only look to tax increases as a last resort. It's the only way that governments can stay honest. It's too easy for governments simply to lard on new expensive programs by raising taxes. When I was at Finance the most difficult issue was always where to cut not where to add.

    A good example is Ignatieff's new daycare scheme. Since my childrearing days were in another century it won't attract my vote, but others may differ. However, before imposing another massive entitlement program Ignatieff should be ready to tell voters what he intends to cut in order to pay for it.

    • " the Liberals and NDP threatened to hijack the government"

      Yes. How dare a majority of our representatives in House attempt to influence policy.

      By the way, do you happen to have a quasi-criminal term to describe the government playing fast and loose with proroguation powers?

      • I believe the polls showed that an overwhelming majority of Canadians at the time agreed with my sentiment that the attempt to place Dion in the PM's chair was equivalent to hijacking. There is always the option that the parties in question can join together to defeat the government in the House so we that can finally have another election and settle this dispute once and for all. But I believe they dont want to do this. Are they afraid of the results perhaps?

  15. Unwanted ain't the same thing as illegal.

    • But I thought that if something was unpopular, it became unconstitutional.

      I dunno, all these rightwing talking points start sounding the same after a while.

  16. " the Liberals and NDP threatened to hijack the government"

    Yes. How dare a majority of our representatives in House attempt to influence policy.

    By the way, do you happen to have a quasi-criminal term to describe the government playing fast and loose with proroguation powers?

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