NDP’s job tax credit giveaway

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.



4 thoughts on “NDP’s job tax credit giveaway

  1. Were Andrea H to approach Lindsay T, asking her to design an implementation regime for her tax giveaway that avoids the problems she (and Milligan) have identified, would she agree?
    Well, why wait? Just do it!
    For example, you might suggest financing the credit (ooops, I mean giveaway) via a (more) progressive corporate tax. In other words, let the entire employer community (which is failing to provide enough jobs for the employee community) pay for the credit.
    But don’t let me put words in your (or Milligan’s) mouth. I’d really like to hear your suggestions for what might make such a credit work, in whole or in part, including limited trials of various alternative implementations.
    My underlying concern: scholars readily (and very helpfully — thank you) criticize proposals of politicians and journalists and the general public; yet much more helpful might be suggestions for improving the proposals themselves. What prevents this? Is there too much risk? Are scholars too busy with their day jobs, as was suggested to me by one?

    • The NDP provide no information about the purpose, objective, and rationale for the tax credit, and the tax credit is orthogonal to other stated policy goals. The NDP have to reconcile its measures and provide the information to substantiate its selected policy tools.

      If the goal is to subsidize businesses, the tax credit does that. Remember, most jobs in the economy will be created even if a walnut was premier. The problem with tax credits, as economists such as myself and Dr. Milligan have stated time again, is that they reward behaviour that would occur anyway. There is no way around that. I have no obligation to help the NDP design yet another boutique tax credit, as you suggest.

      Economists, particularly Dr. Milligan, have been clear that we are entering into a difficult period in our economy, where past growth rates will be hard to achieve. In fact, I might direct you to this post: http://www.macleans.ca/economy/job-creation-is-no-longer-a-top-priority/

      I take great issue with you suggesting that scholars are not providing direction for policy. They are, but they are not being listened to. Or perhaps people are lazy enough and expect one blog post to bring all of it together?

      • Many thanks for your response. I apologize for suggesting (not my intention) that scholars are not hard at work providing direction for policy. Yet, connections are not being made between scholars who do know what’s what and politicians who get to act as though they did. Is it lazy politicians (and an even lazier public)? Perhaps so.

        My feeling is that connections need to be made. It is our political system and we need to participate in it effectively by engaging politics through political parties: members of the public, by joining a particular party and working in a riding association; scholars, by (somehow) associating themselves very directly with a particular party (their choice) for the purpose of improving the policies of that party.

        For criticism of a policy to have purchase, doesn’t the critic need to buy into the party? And if criticism doesn’t have purchase, what’s the point? Is there another game in town besides party politics? What is the value of a legacy of good advice that was never taken?

        Thank you for this opportunity to ask these questions. I appreciate the patience and respect the excellence of the remarks that you and Milligan and so many other scholars exhibit in your public commentary.

      • Academic weighing in on public policy issues focus solely on the facts as they know them. There is an abundant amount of information available, readily and freely, to guide politicians who want it. Politicians though have to decide if they ‘like’ those facts (do they fit with their paradigm) and what it means to their agenda. Good advice is oft ignored by politicians in their quest for votes.

        The same is true for voters. The information is available for those that want it. Most don’t. Most will only accept information that fits their paradigm. What dots need to be connected for any one individual is unique. To suggest that academics, providing their time and expertise without real compensation (BTW most of us do this in addition to our day jobs), are required to provide this navigation for every path does not sit with me. The individual has an obligation in this ‘relationship’ as well.

        Academic commentary in its purest is without agenda. I don’t see why I have to be a member of a political party to provide my commentary on their policy platform. In fact, academic commentary without the shackles of political paradigms is often what is valued about the commentary.

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