Connect with us
[bsa_pro_ad_space id=12]

Business

The Problem of Corporate Tax Rate Hikes

Published

7 minute read

 

Why it’s nearly impossible to avoid causing more harm than good

Are Canadian corporations paying their share? Well, what is their share? And before we go there, just how much are Canadian corporations paying?

According to Statistics Canada, in the second quarter of 2024 the federal government received $221 billion from all income tax revenues (excluding CPP and QPP). Provincial governments took in another $104 billion, and local (municipal) governments got $21 billion. Using those numbers, we can (loosely) estimate that all levels of government raise somewhere around $1.38 trillion annually.

The Audit is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.

If you’re curious (and I know you are), that means taxes cost each man, woman, and child in Canada $33,782 each year. Trust me: I feel your pain.

Based on Statistics Canada data from 2022 (the latest comparable data available), we can also say that roughly ten percent of those total revenues come from corporate taxes at both the federal and provincial levels.

Keep that 10:90 corporate-to-personal tax revenue ratio in mind. Because what if raising the corporate tax rate by, say, five percent ends up driving businesses to lay off even one percent of workers? Sure, you’ll take in an extra $7 billion in corporate taxes, but you might well lose the $12 billion in personal income taxes those laid-off workers would have paid.

How Much Should Corporations Pay?

Ok. So how should we calculate a business’s fair share? Arguably, a single dollar’s worth of business activity is actually taxed over and over again:

  • When a corporation earns revenue, it’s taxed on its profits.
  • Any remaining profit may be distributed to shareholders in the form of dividends. Shareholders, of course, will pay income tax on those dividends.
  • Corporations pass on part of the tax burden to consumers through higher prices. When consumers pay those higher prices, a part of every dollar they spend is indirectly taxed through the corporation’s price adjustments.
  • Employee wages paid from after-tax corporate profits are taxed yet again.
  • Shareholders may eventually realize capital gains when they sell their shares. These gains are, naturally, also taxed.

I guess the ideal system would identify a corporate tax rate that takes all those layers into account to ensure that no single individual’s labor and contribution should carry an unreasonable burden. I’ll leave figuring out how to build such a system to smart people.

Does “Soaking Rich Corporations” Actually Work?

Do higher corporate taxes actually improve the lives of Canadians? Spoiler alert: it’s complicated.

Government policy choices generally come with consequences. From time to time, those will include actual solutions for serious problems. But they usually leave their mark in places of which lawmakers were initially barely aware existed.

Here’s where we get to explore some of those unintended consequences by comparing economic performance between provinces with varying corporate tax rates. Do higher rates discourage business investment leading to lower employment, economic activity, and incoming tax revenues? In other words, do tax rate increases always make financial sense?

To answer those questions, I compared each province’s large business tax rate with four economic measures:

Using four measures rather than just one or two gives us many more data points which reduces the likelihood that we’re looking at random statistical relationships. Here are the current provincial corporate tax rates for large businesses:

If we find a significant negative correlation between, say, higher tax rates and outcomes for all four of those measures, then we’d have evidence that higher rates are likely to have a negative impact on the economy (and on the human beings who live within that economy). If, on the other hand, there’s a positive correlation, then it’s possible higher taxes are not harmful.

When I ran the numbers, I found that the GDP per capita has a strong negative correlation with higher tax rates (meaning, the higher the tax rate, the lower the GDP). GFCF per capita and the private sector employment rate both had moderately negative correlations with higher taxes, and my own composite economic index had a weak negative correlation. Those results, taken together, strongly suggest that higher corporate tax rates are indeed harmful for a province’s overall economic health.

Here’s a scatter plot that illustrates the relationship between tax rates and the combined outcome scores:

Alberta, with the lowest tax rate also has the best outcomes. PEI, along with New Brunswick and Nova Scotia, share the high-tax-poor-outcome corner.

I guess the bottom line coming out of all this is that the “rich corporations aren’t paying their share” claim isn’t at all simple. To be taken seriously, you’d need to account for:

  • The true second-order costs that higher corporate taxes can impose on consumers, investors, and workers.
  • The strong possibility that higher corporate taxes might cause more harm to economies than they’re worth.
  • The strong possibility that extra revenues might just end up being dumped into the general pool of toxic government waste.

Or, in other words, smart policy choices require good data.

The Audit is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.

Todayville is a digital media and technology company. We profile unique stories and events in our community. Register and promote your community event for free.

Follow Author

2025 Federal Election

As PM Poilievre would cancel summer holidays for MP’s so Ottawa can finally get back to work

Published on

From Conservative Party Communications

In the first 100 days, a new Conservative government will pass 3 laws:

1. Affordability For a Change Act—cutting spending, income tax, sales tax off homes

2. Safety For a Change Act to lock up criminals

3. Bring Home Jobs Act—that repeals C-69, sets up 6 month permit turnarounds for new projects

No summer holiday til they pass!

Conservative Leader Pierre Poilievre announced today that as Prime Minister he will cancel the summer holiday for Ottawa politicians and introduce three pieces of legislation to make life affordable, stop crime, and unleash our economy to bring back powerful paycheques. Because change can’t wait.

A new Conservative government will kickstart the plan to undo the damage of the Lost Liberal Decade and restore the promise of Canada with a comprehensive legislative agenda to reverse the worst Trudeau laws and cut the cost of living, crack down on crime, and unleash the Canadian economy with ‘100 Days of Change.’ Parliament will not rise until all three bills are law and Canadians get the change they voted for.

“After three Liberal terms, Canadians want change now,” said Poilievre. “My plan for ‘100 Days of Change’ will deliver that change. A new Conservative government will immediately get to work, and we will not stop until we have delivered lower costs, safer streets, and bigger paycheques.”

The ’100 Days of Change’ will include three pieces of legislation:

The Affordability–For a Change Act 

Will lower food prices, build more homes, and bring back affordability for Canadians by:

We will also:

  • Identify 15% of federal buildings and lands to sell for housing in Canadian cities.

The Safe Streets–For a Change Act 

Will end the Liberal violent crime wave by:

The Bring Home Jobs–For a Change Act 

This Act will be rocket fuel for our economy. We will unleash Canada’s vast resource wealth, bring back investment, and create powerful paycheques for workers so we can stand on our own feet and stand up to Trump from a position of strength, by:

Poilievre will also:

  • Call President Trump to end the damaging and unjustified tariffs and accelerate negotiations to replace CUSMA with a new deal on trade and security. We need certainty—not chaos, but Conservatives will never compromise on our sovereignty and security. 
  • Get Phase 2 of LNG Canada built to double the project’s natural gas production.
  • Accelerate at least nine other projects currently snarled in Liberal red tape to get workers working and Canada building again.

“After the Lost Liberal Decade of rising costs and crime and a falling economy under America’s thumb, we cannot afford a fourth Liberal term,” said Poilievre. “We need real change, and that is what Conservatives will bring in the first 100 days of a new government. A new Conservative government will get to work on Day 1 and we won’t stop until we have delivered the change we promised, the change Canadians deserve, the change Canadians voted for.”

Continue Reading

Automotive

Canadians’ Interest in Buying an EV Falls for Third Year in a Row

Published on

From Energy Now

Electric vehicle prices fell 7.8 per cent in the last quarter of 2024 year-over-year, according to the AutoTader price index

Fewer Canadians are considering buying an electric vehicle, marking the third year in a row interest has dropped despite lower EV prices, a survey from AutoTrader shows.

Forty-two per cent of survey respondents say they’re considering an EV as their next vehicle, down from 46 per cent last year. In 2022, 68 per cent said they would consider buying an EV.

Meanwhile, 29 per cent of respondents say they would exclusively consider buying an EV — a significant drop from 40 per cent last year.

The report, which surveyed 1,801 people on the AutoTrader website, shows drivers are concerned about reduced government incentives, a lack of infrastructure and long-term costs despite falling prices.

Electric vehicle prices fell 7.8 per cent in the last quarter of 2024 year-over-year, according to the AutoTader price index.

The survey, conducted between Feb. 13 and March 12, shows 68 per cent of non-EV owners say government incentives could influence their decision, while a little over half say incentives increase their confidence in buying an EV.

Continue Reading

Trending

X