The Wisdom Of Direct Investment

One of  the Right's favourite shibboleths is that, when government invests directly in people, it encourages sloth. Far better to offer citizens tax credits. Government shouldn't invest, they say. It should cut taxes. But Carol Goar writes in The Toronto Star:

The C.D. Howe Institute, financed primarily by business, has concluded after a thorough analysis of the tax system that Ottawa should switch back to investing in social programs.

Economists Alexandre Laurin and Finn Poschmann found that the more a working family earned, the more it lost in clawed back benefits and higher taxes. Low-income families were the hardest hit. Their marginal effective tax rate — the amount they owed on each additional dollar — could be as high as up to 60 per cent (80 per cent in Quebec.)

 “There are better alternatives aimed at supporting low-income families through universal in-kind programs such as neighbourhood facilities and services aimed at target communities,” they said.

The Harper government considers that conclusion pure heresy. However, Laurin and Poshmann document how the present tax system encourages sloth:

Last week’s report, Treading Water: The Impact of High Marginal Effective Tax Rates on Working Families in Canada, went a step further. It followed the poor into the labour market and found they were penalized for extra effort. The more they earned, the more benefits they lost. The three big ones were the Canada Child Tax Benefit, which is phased out as a family’s income rises; the GST/HST Credit, which likewise diminishes as income rises; and the Working Income Tax Benefit, which starts to decrease at a family income of $15,509 and falls to zero at $27,489.

 To make their numbers relevant to laymen, Laurin and Poschmann created a hypothetical couple, Peter and Marie Thompson, with two children living in a rented apartment. He worked full-time and she worked part-time. Together they brought in $40,000 — just enough to make ends meet. Marie was considering a switch to full-time work to earn extra money. But once the couple weighed the costs and benefits, they realize she’d lose almost much in benefits as she’d make in income. (Her marginal effective tax rate was 68 per cent).

Well-off couples are spared this double whammy. If one of the parents worked longer hours, it might push the family into a higher tax bracket, but it wouldn’t result in lost cash benefits because most are targeted at low-income earners.

The Harper government has declared war on the poor. It has reduced Employment Insurance benefits. It has accused recipients of fraud. It has cut health care spending. It has trashed the Kelowna Accord. And it has helped the rich get richer -- claiming that helping the rich get richer will create jobs for the poor.

The evidence is incontrovertible. Their "program" is pure hogwash. If they really wanted to improve the lot of those who are just getting by, they would invest in affordable child care and public transportation. Instead, they offer sermons about laziness and their own righteousness.

Believing The Earth Is Flat

Corporate Canada is still sitting on its profits. Despite cheer leading from Mark Carney and Jim Flaherty, business is not investing that money and it is not creating jobs. Carol Goar writes:

According to Deloitte Canada’s 2013 outlook, “defensive balance sheet strategies are the order of the day.” Its survey of chief financial officers showed their companies’ top priorities were cutting costs and bolstering cash flow. Capital spending ranked a distant fourth. “By and large, big companies have the power to invest,” the consultancy said. “The missing ingredient — and one which holds the key to corporate behaviour — is confidence about future growth.”

The missing ingredient is demand. And when consumers are tapped out and carry heavy debt, the government is the customer of last resort. When he faced defeat in 2008, Stephen Harper was willing to act as that customer. Now, having encouraged Europe's Age of Austerity, he has applied the same medicine to Canada.  As last week's job report indicates, that idea didn't work out so well:

Canada's economy lost 54,500 jobs in March, bleak new data from Statistics Canada showed Friday.

That's the worst month for Canadian employment since before the last recession, in February 2009. When added to the numbers for January and February, they show that Canada's economy has lost 26,000 jobs so far in 2013 as a whole.

The job losses pushed Canada's jobless rate higher to 7.2 per cent.

The data raises questions about the government's chief sales pitch -- superb economic management:

It raises questions about the value of the $1.4 billion in investment tax credits he offered the corporate sector to do more research, open new markets and modernize their factories and equipment. They all require capital spending, which doesn’t appear to be on the corporate sector’s agenda.

And it leaves taxpayers wondering what the nation is getting for the $60 billion in corporate tax cuts the Conservatives have doled out since they took office. The recipients of this largesse aren’t using it to spur economic growth. They aren’t creating jobs. And they aren’t turning scientific discoveries into commercially viable products.

The Harper mantra is corporate tax cuts create jobs. That notion has always been hogwash. Customers create jobs. Believing what Stephen Harper says is the equivalent of believing that the earth is flat.