Canada’s Corporations Have Already Earned Enough To Pay Their Income Taxes For The Year

MONTREAL ― By Tuesday, Jan. 7, just before 9 a.m., the typical Canadian corporation had already earned all the money it will need to pay its income taxes this year.

That’s according to a new study from advocacy group Canadians for Tax Fairness, which found that income taxes account for a mere 1.75 per cent of businesses’ operating revenues.

The study concludes that Canada’s two-decade run of corporate tax cuts has failed to spur the business investment it was supposed to; cost governments hundreds of billions of dollars; and worsened inequality.

Click Here: creed perfume sale

Watch: Should Canada’s super-rich pay a super-tax? Story continues below.

 

Toby Sanger, the economist who wrote the report on behalf of the group, estimates that for individuals, “income tax freedom day” only comes at the end of February. Based on tax estimates from Statistics Canada, Canadian households will have earned enough to pay their income taxes by 10 p.m. on the evening of February 29 (or March 1 if this weren’t a leap year).

“We need to recognize that cutting corporate taxes has been a multi-hundred-billion-dollar failure, stop the race to the bottom, restore corporate tax rates and invest additional revenues in public services that both grow the economy and improve the lives of all Canadians,” Sanger wrote in the report.

Beginning around 2000, successive Canadian governments, both Liberal and Conservative, enacted a series of tax cuts that dropped the corporate tax rate from among the highest for a major economy to among the lowest.

Around 2013, Canada passed a meaningful milestone: For the first time on record, individuals are now paying more of the country’s tax burden than corporations.

By Sanger’s estimates, the effective tax rate for corporations ― that is, the actual tax burden they have when taking into account tax breaks, deductions and subsidies ― is 18.8 per cent of taxable income (revenue minus expenses and deductions). That’s down from nearly 40 per cent in 2000.

That windfall was supposed to result in business investment that created jobs and made Canada’s companies more productive. But Sanger ― along with many other economists ― notes this hasn’t happened.

In fact, business investment declined “in lock step” with corporate tax rates, Sanger found.

Where did the money go?

Rather than reinvesting the money, corporations have largely handed it over to shareholders in the form of higher dividends, or used it to stockpile cash, Sanger’s study concludes.

Canadian corporations now hold some $532 billion in cash that is largely unproductive in the economy ― which is why former Bank of Canada governor Mark Carney called this cash hoard “dead money” in a 2012 speech.

That cash pile is “equivalent to over 23 per cent of our annual economic output and three-quarters of the federal government’s debt,” Sanger noted.

Citing research from the International Monetary Fund, Sanger argues the corporate tax cuts seen in Canada and elsewhere have helped large corporations more than small businesses. The result is that large companies have been able to compete by buying up smaller ones, rather than innovating new products.

“A lot more has been spent on mergers and acquisitions,” Sanger said in an interview. “And now people are concerned about increased monopoly power.”

With less need to compete, Canadian business profits have been on the rise ― and again, that windfall has gone to shareholders and to the corporate cash pile.

“This has led to increased inequality without the benefits trickling down,” Sanger concluded.

Air Canada CEO’s salary higher than company’s tax bill

To illustrate the point, the report gives the example of Air Canada, which it says has had an effective tax rate of 1 per cent on its profits over the past five years. 

“It gave its CEO, Calin Rovinescu, a pay package worth $11.5 million in 2018, almost twice its annual average tax payment, and 27 per cent higher than the year before,” Sanger’s report noted.

“It’s clear where the hundreds of millions it has avoided in tax has gone: not to its workers, who have received annual 2-per-cent pay increases, nor back to the public through taxes.”

But Canada is not alone in cutting corporate taxes; one of the core arguments for the cuts over the years is that other countries are doing it, too.

This “race to the bottom” has to stop, Sanger argues ― and he’s encouraged by the fact that efforts to combat the problem are taking place at the international level.

Just days ago, Kristalina Georgieva, managing director of the International Monetary Fund, called for higher taxes on the wealthy to combat growing inequality.

The fact that language like that is now coming from people near the very top of the global financial system is a sign things are changing, Sanger argues.

“People in those positions realize that something (bad) has happened and we need to reverse the trend,” he said.

Leave a Reply

Your email address will not be published. Required fields are marked *