The Folly of Corporate Tax Cuts
Feb 01, 2013
The Canadian Labour Congress has produced a report entitled “What Did Corporate Tax Cuts Deliver” as a backgrounder for Corporate Tax Freedom Day, which fell on January 30 this year.
Because of continued corporate tax cuts, corporate income tax makes up a falling share of all government revenues. By the end of January 2011, corporations had paid their share of provincial and federal taxes two days earlier than they did in the year previous.
In 2000, the federal corporate tax rate was 28 percent. The Liberal government reduced it to 21 percent, and the following Conservative governments have over time reduced it to 15 percent, where it stands today.
The rationale behind corporate tax cuts has always been that the increased profits that would result would be re-invested by companies in their operations, thereby increasing economic growth, productivity, and jobs.
However, numerous studies have demonstrated that rising corporate after-tax profits have not resulted in increased investment at all. What they have done is helped private, non-financial corporations hoard more cash. Statistics Canada has shown that the cash reserves of such companies increased by some $72 billion in 2011. This extra “dead money” is money not being used to increase productivity or to create jobs.
Rather than investing the extra profits, corporations have used the extra capital to increase cash reserves, deliver higher compensation to CEOs, and increase shareholder returns. This has the effect of costing Canadians billions in potential government revenues, contributed to a higher federal deficit and debt, and compromised public services.
“What Did Corporate Tax Cuts Deliver?”: PDF
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