The Ontario NDP recently released it election platform. Part of that plan is to create jobs. Unlike the million dollar jobs plan of the Ontario PCs, the NDP plan lacks any real detail in which to evaluate their plan. As has been discussed in economic circles of late, what is worse: a plan with details where the details show that the plan is based on math worthy of a constructivist math teacher or a plan with no details so that there is nothing to critique? Most of us involved in policy analysis would probably rank the plan with no details worse than the plan based on faulty math.
For example, the NDP plan to “stop corporate tax giveaways.” What does ‘tax giveaways’ mean? While most economists abhor corporate welfare programs and would applaud a stand against these policies, in the same breath the NDP are pledging to reward businesses that create jobs with what can, in fact, be interpreted as a ‘tax giveaway.’ In particular, just a few lines down in the ‘platform’, the NDP says it will reward businesses that create jobs with the Job Creation Tax Credit. Without any details of their plan, I can’t for the life of me reconcile these two competing pledges. Let me explain why.
Let’s consider this tax credit proposal. All we know about this pledge is that apparently it will be a two year tax credit (cough, bullshit, cough). It will cost $250 million a year for each of the two years it will be in existence. And it will create an astounding 170,000. Assuming these are real jobs and not job years, this implies 85,000 new jobs in year one that will be ongoing and then another 85,000 new jobs the next year that too will be ongoing. Now I also assume these 170,000 jobs are jobs that are solely attributable to the tax credit. After all, why would the NDP, who are pledging to stop corporate tax giveaways, give away tax money to businesses for doing what they would do otherwise.
And that my friend is indeed the rub. My colleague Kevin Milligan, writing for Macleans, has done a great analysis of this tax credit. And I encourage you to read his work. I would like to add the following to the discussion.
- What assurances do we have that we are not simply subsidizing jobs (i.e. providing corporate welfare) that would be created otherwise? In fact, the research from the US studying job creation under job tax credits shows that only 20-30% of the jobs created under a tax credit scheme would not be created otherwise (here, here, and here). If that is the case, then all we are doing is transfering money from employees ( in the form of tax payers) to employers. Kevin goes into much more detail about this niggling detail if you want more information.
- An earlier study made note of the fact that many firms did not even know about the job credit resulting in knowledgeable firms being given a competitive advantage over those that did not. What plans will the NDP put in place to make sure the all businesses that create jobs will know about and be eligible for the tax credit?
- I also wonder about the compliance burden. What additional regulatory burden are they going to place on firms to get access to this tax credit? What is the cost on businesses of this additional burden and does the tax credit compensate for that burden? Will we be in a situation like with the SR&ED tax credit where nearly half of the tax benefit from the credit goes to experts in the field to help firms get access to the credit?
- As someone who is knowledgeable about the underground economy, will this tax credit overcome the desire to hire workers off the books? If so, great but then are these really new jobs or just old jobs that were not previously counted?
- If these jobs would not exist without the tax credit, why would they continue to exist without the tax credit when it expires in after the 2015-2016 fiscal year?
So without any detail forthcoming from the NDP, I am left with very little positive to say. I am skeptical of the job tax credit creating many new jobs at all and philosophically I am unable to reconcile various element in their plan. In fact, I am left thinking the left hand does not know what the other left hand is doing.