How much revenue can you get from raising the corporate tax rate? - Macleans.ca

How much revenue can you get from raising the corporate tax rate?

How much would an NDP government gain?

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On the topic of Thomas Mulcair’s approach to tax policy, Erin Weir tries to figure out how much a point of corporate tax is worth. He settles on somewhere between $1.6 billion and $1.7 billion, but, as he notes, that’s really only where the debate begins.

On the other hand, raising corporate tax rates arguably could reduce taxable corporate profits by discouraging profit-generating investments and/or by encouraging corporate tax avoidance. The significance of these supposed dynamic effects is hotly contested. But we should at least get our static estimates right before delving into that debate.

Indeed, Stephen Gordon delved into this a year ago.

The CLC estimate is what you get if you assume that the only behavioural response to an increase in corporate tax rates is that firms’ CFOs will grit their teeth and put bigger numbers on the cheques they send to the Receiver-General. But in a world in which multinationals file 57,000-page tax returns, one can only marvel at the faith in human nature among those who would make policy based on such a belief. People respond to incentives, and if you make it more costly to report profits in Canada, firms will do less of it. Partly because they will make less profits as investments decline, partly because firms will shift income away from Canada … If you’re a government looking to generate a noticeable increase in revenues, you may as well forget about corporate taxes.

For more of Stephen’s calculations see here and here.

In 2011, the NDP booked annual revenue increases of $5.9 billion, $8.6 billion, $9.3 billion and $9.9 billion from raising the corporate tax rate to 19.5%.