One Third Cut to Business Taxes Would Create at Least 55,000 Jobs, Grow Alberta Economy by $13 billion
Calgary, AB: A United Conservative government would get Albertans back to work by delivering a Job Creation Tax Cut which economists estimate would create at least 55,000 jobs, and grow Alberta’s economy by $13 billion.
United Conservative Leader Jason Kenney called today’s announcement “the centre piece of our Job Creation Strategy designed to get Alberta back to work.”
“Last week’s economic news suggests that we may now be in the NDP’s second recession in four years,” Kenney said. “170,000 Albertans are out of work, tens of thousands have given up looking for work, the average family’s take home pay is down by $6,400 since the NDP came to office, and unemployment has been on the rise for six of the past eight months. We cannot continue like this. We need real change that gets Alberta back to work.”
Kenney made the announcement from an empty floor of a Calgary office tower, which he called a symbol of four years of failed NDP economic policy.
“Over a quarter of downtown Calgary looks like this – empty floors that used to occupy tens of thousands of people working in high paying jobs. Empty space like this is growing in Edmonton, and in communities around our province. These vacant offices aren’t going to fill themselves,” Kenney said. “The thousands of businesses that have gone under aren’t going to be replaced by a few government subsidies. The flight of jobs and money from Alberta to the US won’t stop by accident. It will require bold, decisive action to restore investor confidence, to diversify our economy, and to undo the damage of the NDP’s job-killing policies.”
“So today I’m announcing that if elected, a UCP government will implement the Job Creation Tax Cut to reduce the provincial tax rate on employers by one third, from twelve percent to eight percent over four years. This will make Alberta once again a magnet for job-creating investment, with the lowest taxes on employers in Canada.”
The Job Creation Tax Cut will benefit every Alberta business, including the ninety-seven percent of Alberta businesses that are small or medium sized businesses with fewer than 500 employees.
Economist Dr. Jack Mintz, considered Canada’s leading tax policy expert, estimates that the UCP Job Creation Tax Cut will lead to the creation of at least 55,000 new jobs.
The UCP asked University of Calgary economist Dr. Bev Dahlby, who has spent decades researching the economic impact of taxes on the economy, to analyze the impact of reducing the tax on business from 12 per cent to eight per cent. Dr. Dahlby, this based in his 2012 published paper to estimate the UCP’s proposed one third reduction in Alberta’s general business tax rate.
Dr. Dahlby found that that tax relief would:
- Result in a $12.7 billion increase in the province’s nominal Gross Domestic Product (GDP)
- Total revenues to the provincial government would be $1.2 billion higher by 2023 as a result of the economic stimulus created by the tax cut;
- That Alberta’s nominal GDP would grow to $465.4 billion by 2024 under the UCP Job Creation Tax Cut scenario, compared to GDP of $452.7 billion in a scenario where the business tax rate stays at its current 12% rate.
- That that after 10 years per capita real GDP, would be 6.5 percent higher.
|Government revenues: An analysis of reducing Alberta’s Corporate Income Tax rate from 12% to 8%|
|Current Total Revenue Forecast||56.5||61.1||63.5||67.4|
|Total Revenues With CIT Rate Cut to 8 Percent in 2022||56.5||61.4||64.2||68.6|
|Other Tax Revenues||21.6||23.7||25.9||27.6|
|Additional revenues annually due to CIT rate cut||0||0.3||0.7||1.2|
|Source: Dr. Bev Dahlby calculations, based on Erget Ferede and Bev Dahlby. The impact of tax cut on economic growth: Evidence from the Canadian Provinces. National Tax Journal, September 2012, 65 (3), 563-594.|
The UCP Job Creation Tax Cut would reduce the general business rate from 12% to 11% on July 1, 2019, and would then reduce it by a further percentage point each year until fiscal year 2022-23, when it would be by far the lowest rate in Canada, at 8%. Professor Dahlby’s analysis estimates that while total revenues initially decline as a result of the reduction in the CIT rate in 2019-20, other tax revenues and other revenues increase as a result of a faster rate of economic growth and total revenues are higher in subsequent years. In that sense, the tax cut is self-financing.
“The NDP recklessly hiked taxes on job creators by 20% in the middle of a recession,” Kenney pointed out. “Economists and employers predicted that their huge tax increase would stifle growth and kill jobs, but the NDP ignored them because they think ‘profit’ is a dirty word. While the NDP platform predicted that their tax hike would bring in more revenue, they’re actually getting less. Corporate tax revenues this year are projected to bring in $4.08 billion at the NDP’s 12% rate, compared to $5.8 billion that was generated at the old 10% rate in 2014-15, and $1.2 billion less than the NDP projected in their 2015 election platform. The verdict is clear: higher NDP taxes on job creators killed jobs, and reduced government revenue.”
Kenney said the Job Creation Tax Cut is a key part of the UCP’s Jobs Strategy, other aspects of which will be announced in the coming days and weeks. “Alberta led Canada in jobs, incomes and growth in recent decades in part because we had the lowest taxes which attracted hundreds of companies, like Canadian Pacific and Imperial Oil. But now the NDP has given us higher business tax rates than Ontario and Quebec, with no advantage over our neighbouring provinces of BC and Saskatchewan,” Kenney remarked.
“While the NDP is making us less competitive, the world is changing. Tax reform in the United States means that we have gone from having a big tax advantage over our US competitors, to having higher taxes than the vast majority of US states,” Kenney said. “That’s one reason why tens of billions of dollars have moved from Alberta to the US since the NDP came to office, and countries around the world are cutting the business taxes to keep up. Either we get back the Alberta Advantage, or we will see more major employers move jobs and investment from our province to lower taxed jurisdictions.”
With Canada’s general federal business rate at 15 percent and the NDP’s 12 percent rate, Alberta’s 27 per cent tax rate places the province at a continental disadvantage: higher than 32 American states whose combined federal-state rates range from 26.5 percent to 21 percent. By 2022, the UCP plan will make Alberta’s general business tax rate competitive again, and be lower than all but six U.S states and tied with a seventh.
“I admit that this Job Creation Tax Cut is bold, and will be attacked by the NDP with their tired old class warfare rhetoric,” Kenney said. “But frankly, the economic crisis facing Alberta is not going to be resolved by tinkering or half measures. And unlike the NDP, we refuse to preside over the gradual economic decline of Alberta.”
“With this announcement, I want to send a loud message to businesses across Canada and around the world. Come to Alberta. Invest here. Innovate here. You will have one of the lowest tax and red tape burdens in North America, because we are the free enterprise heart of Canada. And we are open for business again.”
Myths and Facts
Myth: Reducing the tax rate on job creators will be a ‘give away’ to big corporations.
Fact: 97% of businesses who pay the so-called Corporate Income Tax in Alberta are actually small and medium sized operations with less than five hundred employees. The Small Business Tax Rate only applies to the first $500,000 of business profit. The vast majority of Albertans work for employers taxed at the higher General Business Tax Rate of 27% (15% is federal, plus Alberta’s current 12% rate.)
Myth: A tax cut on businesses is ‘regressive.’
Fact: As University of Calgary economist Dr. Kenneth Mackenzie has written “some recent econometric evidence which shows that lower corporate taxes lead to higher wages and salaries” and that “This suggests that corporate tax cuts may actually be progressive.” 
Professors Mackenzie and Ferede have written that higher taxes on business means lower pay for workers: “Our computations suggest that for every $1 increase in corporate tax revenue due to an increase in the provincial CIT rate, the associated decrease in aggregate wages ranges from C$1.52 for Alberta.”
Fact: Cutting the rate will generate more economic activity, which will expand the tax base, making the rate cut self-financing.
An econometric analysis of the UCP Job Creation Tax Cut conducted by University of Calgary economist Dr. Bev Dahlby, based on his 2012 study estimates that corporate tax revenues would decline by $348 million in year one (full-year impact), but by 2023-24 total revenues of Government of Alberta are $1.2 billion higher than in the base case because higher output increases other taxes and other sources of revenue:
1. The NDP raised the Corporate Income Tax rate from 10% to 12% in 2015, projecting a subsequent $1.1 billion increase in revenues. Instead, CIT revenues have declined, from $5.8 billion generated at a 10% rate in 2014-15, to a projected $4.08 billion generated at a 12% rate in 2018-19. Just as a lower rate can generate incremental economic activity, a higher rate can diminish economic activity and revenues, as predicted by Professor Jack Mintz in 2015. 
2. When Alberta cut its business tax rate from 15.5% to 10% beginning in the year 2000, CIT revenues actually grew by 80% over six years, far more than projected by the government.
3. The $348 million revenue shortfall projected for 2019-20 will be offset by cost savings, such as cancellation of the NDP government’s $3.7 billion three year rail lease.
Myth: Businesses will just hoard their profits, and not reinvest in the economy.
Fact: The research is clear: raising business taxes shrinks the economy, while cutting business taxes grows the economy. The University of Calgary’s Dr. Bev Dahlby estimates that every extra dollar raised from the corporate income tax costs the economy $3.39, far more than the economic cost of raising a buck from personal income taxes, estimated to be $1.77. 
In other words, taxing job creators is nearly twice as damaging to the economy as raising personal taxes—which the NDP government also did.
Dr. Ergete Ferede and Dr. Dahlby also found that for one per cent cut in the business tax rate boosts the economy by as much as 0.2%. 
Job Creation Tax Cut
The NDP would like Albertans to believe that the province’s distressed economy is the result of poor market conditions for its dominant energy industry. However, the resurgence of the energy industry in other jurisdictions influenced by the same market shows that Alberta’s difficulties are the result of something specific to the province – the ill-advised, ideologically driven policies of its NDP government.
What the NDP did
From the day they came to power, the NDP has resolved fundamental policy questions by doing the exact opposite of the right thing.
Higher Taxes on job creators
Before even tabling a budget in the legislature, the NDP raised  Alberta’s corporate income tax (CIT) from 10 percent to 12 percent – effectively raising business taxes by one fifth and thereby limiting their ability to sustain and create jobs.
This single action destroyed Alberta’s tax advantage: When Alberta’s 12 percent tax was combined with the 15 percent federal business tax, that 27% tax rate took us from among the lowest blended federal-provincial tax jurisdictions in Canada, to the middle of the pack.  From the perspective of international competitiveness, 32 out of 50 American states impose lower tax burdens on business, than Alberta. (The average combined federal-state tax in the U.S. is now 25.8 percent, down from 2015 when that average was 39 per cent. )
The NDP’s tax on everything and everyone: carbon taxes
Also critical to cross-border competitiveness, the NDP imposed a blanket carbon tax that raises prices in all parts of the Alberta economy. In 2018, this was estimated to be a $1.4 billion annual burden  on the economy. Certainly, the province’s 8.03 cent  carbon tax on a litre of diesel fuel  makes Alberta job creators less competitive compared to (American) businesses where no carbon tax is collected. (Federal statistics  also suggest individual Albertans are paying more than $1,100 a year in carbon tax, making work here less rewarding.)
Supposedly, Alberta’s carbon tax was revenue-neutral and the proceeds would not be diverted to other (green) uses. Neither has proved to be the case. 
Alberta’s NDP government has imposed so much new and onerous regulation that the Canadian Federation of Independent Business dropped Alberta’s already poor ‘red tape’ grade from D to F, for the second year running.
Even food banks pay more
As Albertans were struggling to survive in the middle of the worst economic downturn in the province’s history since The Great Depression, Alberta’s NDP government raised taxes on everything and everyone,
From consumers to food banks,  everyone pays more because of higher taxes on people, job creators and carbon. And the NDP didn’t even use the money to balance the budget.
The NDP’s annual series of extra tax hikes since 2015 now cost Albertans $3.6 billion —every year.
That NDP tax-hike included raising taxes on Alberta’s job creators just as cash-flow slowed to a trickle after 2014. As a result, these tax hikes cost jobs.
The NDP were warned: In the of 2015, Canada’s leading tax-policy expert, economist Dr. Jack Mintz, warned that every one-per cent rise in the tax on businesses could cost 8,900 jobs – a conservative estimate of the potential job losses. 
- Every extra $1 in taxes on business costs the Alberta economy more.  Dr. Bev Dahlby estimates that for every extra dollar in higher business taxes, that extra $1 costs the economy $3.39.  Economists call this the “deadweight” effect. Think of a mule burdened with extra packs just as it’s about to climb a hill.
- That was Alberta’s economy – and our job creators – just as the economy crashed in 2015. The NDP added bricks to the backs of the very Albertans needed to create jobs.
The effects of higher taxes and increased red tape
The NDP’s higher taxes on job creators hurt the private sector. Between May 2015 and January 2019, the extra 20,900 Alberta jobs are all government jobs. Over the last four years, private sector employment shrank by 16,500 jobs. Meanwhile, government jobs are up by 37,400 positions. 
Investment in Alberta is down dramatically and still dropping. Among the energy companies that have closed up shop in Alberta since 2015 are Royal Dutch Shell; Conoco Phillips; Kinder Morgan; Marathon Oil, Chevron; Murphy Oil, Apache, Statoil ASA, Total S.A. and just announced – Devon Energy.
This cannot be blamed on the initial drop in oil prices. In a comparison of capital investment in energy, the U.S bottomed out in 2016 while capital energy investment in Canada continue to decline.  Energy capital investment in the United States was
- $198 billion in 2014
- $87 billion in 2016
- And has since recovered to $184 billion in 2018.
In Texas for example, things are booming. In its December 3, 2018 cover story,  National Review described the recovery in that state as the “West Texas Miracle.” Meanwhile, in other energy states south of the border, the unemployment rates are: North Dakota: 2.7 per cent; Oklahoma 3.2 per cent; Utah: 3.2 per cent and Texas: 3.7%. 
In Canada, energy investment was
- $79 billion in 2014
- $47 billion in 2016
- And as of 2018, it has since dropped to $42 billion.
A UCP government cannot reverse this all at once. But we will start.
Tax relief must start right away so entrepreneurs can create jobs and get Albertans back to work. To create tens of thousands of new jobs, The UCP will begin to restore the tax advantage that Alberta had as recently as four years ago. We will do so as we focus government spending, and protect core, front-line services.
What we’re going to do – the UCP Job Creation Tax Cut
The UCP plan to lower business taxes on job creators:
- Alberta has nearly 170,000  small and medium-sized businesses. The UCP plan will lower the tax on job creators by one-third – from 12 percent to 8 percent over four years
- The small business tax rates will remain at two percent.
- There will be no provincial sales tax.
Here’s what some experts say about the UCP Tax Cut for Job Creators
“While it is not the mandate of my think tank to support one political party in particular, there is an overwhelming amount of empirical research and evidence showing the positive effects of corporate tax cuts on investment, job creation and increased wages for workers. The research of my organization clearly demonstrates that, in the end, it is workers who, de facto, for the most part, end up supporting the cost of corporate taxes.”
– Michel Kelly-Gagnon, CEO, Montreal Economic Institute.
“Successful investors create relevant and sustainable businesses and jobs. For years they did so in our province by matching their skills and those of their employees with our many natural and economic advantages. Their work as job creators could never be replaced by government initiatives. We now have years of proof of that both in Alberta and elsewhere.
When job creators risk their capital, they look for a reasonable balance between the risks and returns for that investment. Higher taxes reduce returns and so create a greater loss on both sides of the risk-return equation. Predictably, entrepreneurs and other job creators move their portable capital to locales more in line with that advantages Alberta once possessed.
Conversely, reducing business taxes and developing more common-sense regulation will attract investment, job creators—and jobs—back to Alberta.”
-John Carpenter, MBA FCPA FCGA ICD.D CIA FICB , Former CEO of CGA Alberta, and president of Carpenter Financial Ltd.
The provincial comparison: The one third tax cut on Alberta’s job creators will make Alberta’s main business tax rate, the Corporate Income Tax:
- the lowest among any province
- nearly one third less than Ontario and Quebec
- fully one third lower than British Columbia
- nearly half that of New Brunswick and Newfoundland and Labrador
- fully half that of Nova Scotia and Prince Edward Island
Why we’re going to cut taxes for job creators first
1. Alberta is in danger of a double-dip recession Economist Trevor Tombe noted in January that Alberta’s recovery is “slower than any recovery … in the past 20 years. That means there’s not a lot of room based on where we are now and where negative growth would be – it is getting close to a second recession.” 
2. Job creators need cash flow Getting people back to work is not magic. When business cash flow is down because of depressed prices and a recession, the last thing the NDP government should have done was to hike taxes on what little profits were left. But that’s what the NDP did.
A UCP government will cut taxes on Alberta’s job creators to free up job creators to reinvest in Alberta, by hiring more Albertans.
3. Albertans needs jobs Economist Jack Mintz estimates that the UCP tax cut plan for job creators will create 55,000 new jobs over four years, and that is a conservative estimate that does not include further, positive growth impacts.
Those jobs will be real, sustainable jobs, created by Alberta’s entrepreneurs based on great cash flow to their businesses.
4. Cutting taxes on job creators helps the economy grow Cutting taxes on job creators is the most effective, sustainable way to get the economy moving. The UCP asked Dr. Bev Dahlby, based on his previous 2012 work on tax relief and economic stimulus,  how much extra economic growth and extra revenues would result from the proposed one-third cut in business taxes. Dr. Dahlby found that:
- The corporate tax rate reduction boosts the growth rate of per capita real GDP by an average of 0.059 percentage points from 2020 to 2024.
- Nominal GDP is $12.7 billion higher than in the base case scenario (in 2024).
- Corporate tax revenues initially declines by $348 million in 2019-20, but by 2023-24 total revenues of Government of Alberta are $1.2 billion higher than in the base case because higher output increases other taxes and other sources of revenue.
- The positive effects of the tax cut cumulate over time, and after 10 years per capita real GDP is 6.5 percent higher than in the base case.
In other words, beyond an initial decline specific to corporate income tax revenue, overall net revenues will rise due to the stimulative nature of the tax relief. They use the extra dollars to reinvest in the Alberta economy. They expand their businesses, hire on more employees, these employees pay taxes. New businesses see the 8% rate, and they relocate dollars to Alberta, they open up offices here, they hire Albertans, who pay income taxes. The Job Creation Tax Cut will generate $1.2 billion in incremental total revenues by 2023/24, a $12.7 billion boost to GDP and 55,000 new private sector jobs. That is why UCP government will cut the general corporate tax rate for job creators by four percentage points.
5. Cutting taxes on job creators means higher wages for hard-working Albertans Cutting taxes on job creators also benefits workers’ salaries.
University of Calgary economist Dr. Kenneth Mackenzie has written “some recent econometric evidence which shows that lower corporate taxes do lead to higher wages and salaries” and that, “This suggests that corporate tax cuts may actually be progressive.” 
University of Calgary economist Kenneth Mackenzie and Ergete Ferede have written that higher taxes in business means reduced pay for workers: Job creators cannot pay out money lost to government:
“Our computations suggest that for every $1 increase in corporate tax revenue due to an increase in the provincial CIT rate, the associated decrease in aggregate wages ranges from C$1.52 for Alberta.” 
6. Cutting taxes will increase Alberta’s tax base as companies shift tax filings to Alberta Dr. Jack Mintz,founder of the University of Calgary’s School of Public Policy and President’s Fellow, estimates that a four-point reduction in the Alberta corporate income tax rate will increase the tax base by 14.4 percent over four years (3.6 percent each year). This is based on profit-shifting estimates using the estimate that the base increases 3.6% increase with each percentage point reduction in the tax rate. 
7. We are in competition not only with other provinces but also with American states for investment In 2019, Alberta’s 12 percent general business tax rate combined with the federal government’s 15 per cent rate makes Alberta’s 27 per cent rate makes Alberta less attractive than 32 U.S. states. The average combined federal-state tax in the U.S. is now 25.8 percent, down from 2015 when that average was 39 per cent.  Alberta’s major competitors, Texas, North Dakota and Oklahoma, have combined blended federal-state tax rates on business of 21.0 per cent, 24.4 per cent, and 25.7 per cent respectively.
By 2022, the UCP plan will make Alberta’s general business tax rate competitive again and be lower than all but six U.S states (Nevada, Ohio, South Dakota, Texas, Washington, Wyoming) and tied with a seventh (North Carolina). 
Paying for the Job Creators Tax Cut
To offset the one-year foregone revenue of $348 million from the Corporate Income Tax, a UCP government cancel the NDP’s $3.7 billion three-year rail lease.
 Bev Dahlby and Erget Ferede. The marginal cost of funds and the Laffer Curve. Finance Analysis No 74. Vol 1, 2013. Estimates updated in 2018.
In Alberta, as of December 2015, there were:
- 169,305 small (between one and 99 employees) and medium-sized businesses (between 100 and 499 employees.) Of these, 168,868 or 99.7% were small businesses.
- Small and medium size businesses employed nearly 1.4 million Albertans, or 91% of the over 1.5 million private sector employees
- There were an additional 155,492 SMEs without employees in Alberta in 2015.
While not every business will pay the full corporate tax rate if they are too small, the UCP growth plan will help all Alberta businesses thrive as small, medium or large, all benefits from increased economic activity.