Tom Mulcair's idea on corporate taxes sounds scary - Macleans.ca
 

Tom Mulcair’s idea on corporate taxes sounds scary

Is this the most alarming policy statement of 2013?


 

A similar version of this article appeared first on CanadianBusiness.com

Federal politicians have made a series of alarming policy statements in 2013, but in a recent interview NDP leader Tom Mulcair took the lead for most alarming policy statement of them all:

We will get back to something resembling the American combined rate in Canada which would indeed constitute an increase in corporate taxes.

On the surface, this seems reasonable enough. The United States is by far our largest trading partner, so there should be room to increase Canadian rates without consequence. By keeping our rates just below those of the U.S. you’d think we should be able to prevent capital outflow or corporations booking their profits stateside rather than in Canada (and paying taxes to Washington rather than Ottawa). However, Mulcair’s comment fundamentally misunderstands how the corporate income tax systems work in the two nations.

It is true that the U.S. statutory corporate tax rate is significantly higher than the Canadian rate. The combined U.S. federal and state corporate income tax rate books in at just under 40 per cent, whereas the equivalent Canadian federal and provincial rate average is only 26.5 per cent. Raising statutory rates to U.S. levels would see a near doubling of the current 15 per cent federal rate, which is a massive tax increase in anyone’s book. When Stephen Gordon attempted to estimate how raising corporate tax rates will affect government revenues, he did not even consider rates raised to this level.

However, what ultimately matters to corporations is not the statutory rate, but rather the “effective” rate that they pay after deductions. The U.S. tax code is absolutely riddled with exemptions and deductions, so the average corporation pays to the federal government only 12.6 per cent of its profits. If we include both state and federal tax payments, U.S. companies pay only 16.9 per cent, a far cry from 40 per cent. The Canadian tax system has far fewer loopholes, so Canadian companies do not see their tax bills reduced by the same percentages. Finding exact data on Canadian effective rates is difficult, but estimates I have seen are in the 14-15 per cent range.

In the absence of exact data, there is another way to estimate the size of corporate tax rates. If Canadian effective rates are really significantly lower than U.S. rates, then government corporate tax revenue should be lower in Canada than in the United States. However, the reverse is true. As a percentage of GDP, corporate tax revenue has been higher in Canada than in the U.S. every single year from 2004 to 2011. Once loopholes, exemptions and deductions are taken into account, there is scant evidence that Canadian corporate tax rates are significantly lower than the United States.

The NDP has a number of smart economists working for it, so all of this should be common knowledge to the party. As a courtesy I followed up with the party and asked for additional information or a clarification on Mr. Mulcair’s comments. I received this official statement from Karl Bélanger, principal secretary for the NDP leader: “There is room for movement on corporate taxes while keeping the rate significantly below the United States and be very competitive.”

That does not provide a great deal of guidance beyond letting us know they would keep the combined rate below 39 per cent. But what does the party consider to be “significantly below” U.S. levels? Thirty-six per cent? Thirty-three per cent? A combined tax rate in those ranges would cause a massive outflow of capital from the country and see the provinces lose at least $2 billion dollars per year in corporate tax revenues. That capital outflow might even cause federal corporate income tax revenue to decrease. None of this should be taken to suggest that all measures to make the tax code more progressive are doomed to failure. My colleague Kevin Milligan, for example, has some suggestions for workable reforms.

If the NDP, Liberals or Tories plan to radically alter the tax code should they win the 2015 election, they have a responsibility to provide details to Canadians as soon as possible. A common criticism of corporations in Canada is “corporate short-termism,” i.e. the charge that corporations lack a long-term focus. But if we expect businesses to engage in long-term planning, which includes investment decisions, then some policy certainty is helpful. We cannot predict which party will win the next election, but we should at least be able to know what each party will do if elected.

The NDP is the Official Opposition and has a realistic chance of becoming the next government, so corporations should take them seriously when making plans. Unfortunately, the NDP’s vague talk on corporate taxes has made it riskier to invest in Canada. I am hopeful the party will soon reduce this risk by further clarifying its position.


 

Tom Mulcair’s idea on corporate taxes sounds scary

  1. While you’re busy scaring Canadian businesses about effective taxation comparisons, please also remind them that US businesses are required to provide expensive healthcare insurance coverage for their employees, an expense that is covered by taxation in Canada.

    • Any good US business knows that problem can be fixed by just laying off your full-timers and hiring them back as part-time or contract staff.

      • You forgot TFW

  2. In your link to the OECD data on pct CIT of GDP [“every single year from 2004 to 2011”] Norway stands out as tops with 9.8% – 12.8%, while neighbour Sweden is at 3% – 3.7%.

    Does this mean anything? Can you explain?

    • It means the tax load on society is lower there.

      • Ha. The barista said the same thing.

      • No, the tax load on the corps is lower there. Which can be argued is a good thing in the long run.

      • No, it means that income taxes and consumption taxes account for most of their tax revenue. Sales tax in Sweden is an incredible 25%.

  3. Although parliament won’t resume sitting until October 7, it seems that some politicians are already jockeying for position with one calculated sound bite/photo-op after another being released to the media..Not to be outdone by Justin’s latest policy fluff regarding posting MP’s expense accounts online, Mulcair’s posturing on two separate, but more serious issues facing Canadians, is simple one up-manship. I expect to hear that the Conservatives will soon announce a new approach to their tough on crime bill by tabling mandatory legislation that will allow them to torture, publicly flog, and imprison any of their political opponents who continue to reveal flaws in their leadership during Question Period. A return to the death penalty will be optional.

    • Yep, we tax so much they move to the USA. Just like our actors. Celine Dione might have saved over $40M in taxes by making Vegas her home.

      The concept socialists like Mulcair don’t understand is taxation has elasticity. Too little or too much taxes is a bad thing. Too much taxes inflates the economy and businesses leave if they can. Its why Canada is really a one trick economy of resources. Its also why immigration is high, domestic people are too busy feeding Ottawa children to have their own.

      Ottawa refuses to acknowledge that taxation is too high for our own good. Most of the G8 is this way and why BoC/US Fed/EuroBank print money for debt, as no one is lending governemtn this kind of money, its government we can’t afford.

      But hey, statism types don’t like the truth. But it is why governemtn can’t solve the problems, it the statism greed that is causing the problems.

      • I challenge in you make the case for even one low tax/small govt economy in the world that also respects democratic norms and doesn’t starve, ignore or brutalize its own people – that and or allow the elites to live like Pharaohs

        • Monaco

          • You’re kidding right? A 2 sq mile country that gets most of its income from gambling, tourism and a tax haven for tax cheats and money launderers.

      • Dion lives in Vegas because she was doing 20 shows a week there. Tax rates had exactly nothing to do with it.

  4. 11 mortgage renewal for more debt Mulcair knows so very little about real investing. Fact is investors are taxed a lot more than liberal-socialist-statism types can understand.

    First, companies pay a lot more taxes than the numbers show. Lots of hidden taxes in city, duties, excise, tariffs….EI, CPP and other hidden taxes. Next up, the corporate tax rate, so they pay these taxes. But wait, once the companies have paid all the aforementioned taxes, they dividends and gains are taxed again when the investors get their returns.

    By the time you work the real compounded tax rates of all of above, investors are taxed more than wage incomes. As you have to include all taxation from the business to the investor.

    But corrupt socialist greed knows no bounds. They only see what they want to see. And another reason why I don’t invest new money into Canada any more. As a Mulcair greed and pandering will ruin Canada if he ever becomes a PM. And if it even looks close, I will be long gone offshore. And why so many new offshore accounts are opening, as one move away from Ottawa-tax greed.

    • Bye

  5. Ok, we have tried governemtn statism since 2006 when they printed money for debt that no legitimate investors were buying…all so government could keep on growing while others lost their jobs.

    Really boils down to governments taking more out of the economy than we can afford, it causes the depression as people don’t have enough of their own money to spend on the stuff they want, and this goes for investors and workers, we all get screwed by the government bloat and waste.

    Show ne a nation, and there are plenty of nations doing well, and they have lower taxes and lower governemtn footprint on the economy. They also have less debt.

    Show me a nation in a depression, they come with more taxes, a larger government footprint and more debt.

    Canada is going to have bad fiscal times ahead as any savvy investor knows, the debt bubble ponzi fraud going on now is like a balloon ready to pop. Can’t run a country on spiral debt forever.

    But hey Mulcair, keep on dreaming. I have been to Sweden and lived in socialist Norway, and their bran of socialism is a lot different than the Canadians tax greed. First off, their unions have leashes, no welfare, just workfare…2 entire less layers of non-value added government too.

    • I’d assume then, you’d know that both Norway and Sweden have significantly higher taxes and more expansive social programs than Canada… Sweden, in fact, has among the world’s highest tax rates, topping 50% of GDP.

      • But low to reasonable corporate rates, in fact. It’s taxes on individuals that are high.

  6. More voodoo economics from the NDP. They’ll raise all kinds of taxes, not just the CIT. I don’t care if Mulcair said he won’t raise taxes on individuals. Greg Sellinger said the same thing during the last provincial election in Manitoba, and the moment he was back in office he stabbed every voter in the back with the largest tax hike the province has ever seen. And to make matters worse, in an attempt to justify those tax hikes, he’s increased spending so much that he still can’t balance a budget.

    Everybody knows that an NDP government is a disaster for whoever elects them. The only thing they know about “economics” is spend, spend, spend. Just look at the way Sellinger’s spending is designed to target a small niche of voters each time. They think they can buy elections with our own money.

    The bums don’t have a clue.

    • And AB, Tory heaven, is always debt and deficit free isn’t it? How about so called liberal BC?

    • ” The only thing they know about “economics” is spend, spend, spend. Just
      look at the way Sellinger’s spending is designed to target a small
      niche of voters each time. They think they can buy elections with our
      own money.”

      Substitute “Harper’s tax cuts” for “Sellinger’s spending” and it sounds like a good description of the Feds. I’ll believe they can balance a budget only when they have actually demonstrated the ability.

    • Funny that NDP governments have a record of running the fewestand lowestdeficits of any party in Canada.
      Oh gee, look who has the worst record.

    • I think we are experiencing voodoo economics now.

  7. So now it’s Scary Tom ! Pollsters are continually telling us that

    Angry Tom is treading water because no one knows who he is.

    Well, I believe the bidness/economic media mavens ( entry

    requirement : fill in the blank “markets must be _ _ _ _” ) are

    inadvertently giving him an identity .. The Man Who is Always

    Wrong … About Everything. Not Angry Tom. Not Scary Tom.

    Confused Tom. Yes.

    But, then, if you can bring yourself to buy a few pages of letterhead

    with the wonderful word Zug on it …

    http://www.cbc.ca/news/canada/saskatchewan/ottawa-accuses-cameco-of-multi-million-dollar-tax-dodge-1.1860079

  8. According to KPMG’s Competitive Alternatives report for 2012, Canada has the lowest effective corporate tax rate among all major economies:

    “Corporate income taxes are lowest in Canada (7.3 per cent effective corporate income tax rate), France (14.7 per cent), and China (14.8 per cent). At the other end of the scale, effective corporate income taxes exceed 30 per cent in Japan (31.5 per cent), Brazil (36.1 per cent), and Italy (37.6 per cent). These effective income tax rates are significantly lower than the nominal tax rates in most countries due to the inclusion of various tax incentives, including R&D tax incentives, in these calculations.”

    Neo-cons said cutting corporate taxes would “create jobs.” That turned out to be a joke. Now they say if these failed tax cuts are reversed it will not raise revenues. It’s all agenda driven misinformation. (Since these ideologues believe that people acting in their self-interest works out for the best, why not lie to further their self-interest?)

    KPMG Competive Alternatives 2012 — Focus on Tax (Chp 3, pg 7)
    http://www.competitivealternatives.com/reports/2012_compalt_report_tax_en.pdf#page=9

  9. What’s really scary is neo-con economics which, over the past 30 years, caused towering levels of inequality and debt, produced massive recessions, hollowed out the middle class and culminated in a global economic meltdown. It doesn’t get any “scarier” or “dangerous” than that.

    Don’t trust neo-con used-car salesmen as far as you can throw them.

  10. Corporations do not create jobs. It is consumers who do that. If consumers don’t have the means to buy, corporations shut down.
    The reason why the global economy is still struggling since 2008 is because with no much wealth concentrated in the hands of a few, there is not money out there for consumption as the middle and working classes have less to spend as their incomes continue to decrease.

  11. I couldn’t agree more. Hopefully the NDP never win an election.

  12. LOL.. wait wait.. I thought the whole point of the supply siders arguments were that lower rates would bring in higher revenue. Now you’re arguing that because Canada has higher revenue, we must have higher rates?

    Hell, you even argue against that a paragraph or two later, where you say raising the rates would cause the provinces to lose revenue.

    So.. which is it?

    Does Canada’s higher revenue from corporate taxes indicate higher taxation amounts, or will raising taxation amounts cause lower revenue from corporate taxes?

    Before criticizing their economic ideas, perhaps you need to get your own in order.

  13. Meanwhile King Stevie keeps cutting corporate tax rates claiming that it encourages hiring. But in reality the corporations are sitting on huge amounts of cash, paying their shareholders big profits, hiring TWFs where ever they can and not investing in anything in Canada. A good example of this is Cameco selling our uranium through Switzerland to avoid Canadian taxes.

  14. He is a citizen of france – there they actually tax some classes of people at over 100%

    Send this dipper back to the country he chose to receive citizenship from – we do not need this trash here.