No Need For Further Corporate Tax Cuts
Feb 03, 2011
The Harper government has made it clear that it remains committed to further reducing the general corporate income tax rate even though recent polls have shown that the majority of Canadians, including business owners, do not want any further cuts.
Armine Yalnizyan, in a recent Globe and Mail piece, has made some good points as to why we should say “no” to further corporate tax cuts.
The Department of Finance itself has (probably inadvertently) made the best case for tax cuts being the least effective job creation measure. Cuts produce only about 20 cents of growth for every dollar of tax cut. If you want to create jobs, spending on infrastructure has the most impact ($1.50 for each dollar spent). Spending on income supports for low income and unemployed Canadians has a similar benefit, as do housing initiatives (at about $1.40 per dollar spent).
Federal corporate tax cuts have also been shown to have little effect on investment. One can’t deny that taxation levels are a factor that drive business investment practices, but while taxes are a consideration they are not the primary factor in these decisions.
Corporate tax rates have fallen from 28 percent in 2000 to 18 percent in 2010. As Yalnizyan points out, in the 1960s, which was the heyday of industrial expansion and economic development in Canada, the federal corporate tax rate was 40 percent.
But perhaps the most convincing argument against further corporate tax cuts is the money they remove from public coffers. Although governments like to say that tax cuts “pay for themselves,” Budget 2009 itself shows that reducing the corporate rate from 22.12 percent in 2007 to 18 percent by 2010 removed some $6.7 billion from government accounts. This was during the worst of the recession. Cutting it further this year to 16.5 percent cost us another $2.8 billion in foregone annual revenue. The government’s commitment to reducing the rate to 15 percent ultimately will remove some $13.7 billion annually from federal budgets by next year.
Most Canadians didn’t need any further reasons to say “no” to further corporate tax cuts. But if this is the effect they have on investment and the economy, we certainly can’t afford to even consider saying “yes.”
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