Ever-lower rates: Corporate tax cut doubts
TheStar.com – opinion
Published On Thu Apr 07 2011.
If there’s a single issue dividing Conservatives and Liberals in this election campaign, it’s corporate taxes. The Conservatives are sticking to their plan to keep cutting taxes. The Liberals would roll back the latest cut and cancel one planned for 2012. They would use the money to pay for some of the new social programs they propose.
To hear Conservatives tell it, putting a hold on corporate tax-cutting would kill investment and jobs. “We will not raise taxes on growth,” Finance Minister Jim Flaherty said flatly in his budget speech just before the election call. Unfortunately for him and his party, there’s fresh evidence that the drive for ever-lower corporate tax rates has not produced the bonanza the Conservatives have been promising.
An analysis of Statistics Canada data shows that while Canada’s federal corporate tax rate declined steadily over the past decade — from 28 per cent in 2000 to 16.5 per cent now — companies have not put more money into their businesses. Investment in machinery and equipment has actually declined steadily over the same period, as corporations have saved billions in tax.
At the same time, Canadian companies have been adding billions to their cash reserves — $83 billion since 2008. Instead of investing in the technology and equipment we need to improve our lagging productivity, they’ve been stockpiling money.
Another study raises doubts about another of the claims in favour of lower corporate taxes — that companies will use the cash to create jobs. The Canadian Centre for Policy Alternatives looked at the track record of 198 of Canada’s biggest companies as federal and provincial corporate tax rates were being slashed. Together they saved $12 billion in taxes in 2009 alone, yet they actually created jobs at a slower rate than the economy as a whole (5 per cent for the years 2005-2010, compared with 6 per cent for the general economy).
The study concludes: “The bargain that Canadian governments made to provide Canada’s largest companies with massive tax breaks in return for the promise of jobs and prosperity has not materialized.”
Canada needs to tax corporate profits at a rate competitive with other countries. But we need to strike a balance at a time when the federal deficit tops $40 billion and other priorities cry out for attention. The latest evidence makes the Conservative argument for even lower corporate taxes less persuasive than ever.
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