Tax Cuts Only Work When There Are Jobs

                                                 http://www.theoslotimes.com

Everybody's talking about tax cuts. Stephen Harper has be doing it for six months. Yesterday, Justin Trudeau talked about tax cuts. It's true that Trudeau's proposals would spread the money more evenly and put it into the hands of the people who need it most. But it's also true that tax cuts only work if you're making money. Put another way, tax cuts benefit those who have jobs. And, at the moment, nobody is talking about creating jobs.

Scott Clark and Peter Devries write that no one is talking about using public money to create jobs:

The question centres on the word “deficit”. Stephen Harper has convinced Canadians that all public borrowing is ‘bad’. Oliver continues to pull this Pavlovian trigger in his speeches and, no doubt, it will be play a big role in the Conservative election campaign. The opposition parties leaders are thoroughly spooked and seem to have convinced themselves that even mentioning the concept of deficit spending would be political suicide.

But public borrowing is a tool; it has no moral status. Deficits are ‘good’ or ‘bad’ based on the context — the size of the debt, the cost of borrowing and the use to which the borrowed funds are put. No credible economist would recommend a return to the bad old days of the 1980s. But the Conservatives’ claim that running a deficit in 2015 would turn Canada into Greece is complete rubbish.

At today's interest rates, public debt is easily serviceable:

Consider the following: A deficit of 1 per cent of GDP would be about $20 billion; a deficit of 0.5 per cent of GDP would be about $10 billion; a deficit of 0.25 per cent of GDP would be about $5 billion.

A deficit under 0.5 per cent of GDP is relatively small, if not trivial, by any statistical fiscal standard. A deficit under $20 billion would still allow the ratio of debt to GDP to decline from its current level. In fact, even if the deficit ratio was held constant — which implies increasing deficits — the overall debt burden would continue to fall.

The federal government is in an excellent position to be the ‘bulk borrower’ for the provinces — to secure low-interest loans to use on infrastructure projects that would boost the economy in the short term while increasing economic productivity long-term. Right now, Ottawa can borrow using thirty-year bonds at about 2.5 per cent — dirt-cheap debt, much cheaper than the provinces could secure on their own.

All the parties continue to put the cart before the horse. Tax cuts only work if the people who receive them have incomes. And, for most Canadians, that means having a job.