Business
The Problem of Corporate Tax Rate Hikes
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:
- Gross domestic product per capita
- Business gross fixed capital formation (GFCF – the money businesses invest in capital improvements: the higher the GFCF, the more confidence businesses have in their long-term success)
- Private sector employment rate
- My own composite economic index (see this post)
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.
From the Daily Caller News Foundation
By Thomas English
President Donald Trump’s Monday executive order establishing the Department of Government Efficiency (DOGE) presents a more modest scope for the initiative, focusing primarily on “modernizing federal technology and software.”
The executive order refashions the Obama-era United States Digital Service (USDS) into the United States DOGE Service. Then-President Barack Obama created USDS in 2014 to enhance the reliability and usability of online federal services after the disastrous rollout of HealthCare.gov, an insurance exchange website created through the Affordable Care Act (ACA). Trump’s USDS will now prioritize “modernizing federal technology and software to maximize efficiency and productivity” under the order, which makes no mention of slashing the federal budget, workforce or regulations — DOGE’s originally advertised purpose.
“I am pleased to announce that the Great Elon Musk, working in conjunction with American Patriot Vivek Ramaswamy, will lead the Department of Government Efficiency (‘DOGE’),” Trump said in his official announcement of the initiative in November. “Together, these two wonderful Americans will pave the way for my Administration to dismantle Government Bureaucracy, slash excess government regulations, cut wasteful expenditures, and restructure Federal Agencies.”
The order’s focus on streamlining federal technology and software stands in contrast to some of DOGE’s previously more expansive aims, including Elon Musk’s claim that “we can [cut the federal budget] by at least $2 trillion” at Trump’s Madison Square Garden rally in November. Musk now leads DOGE alone after Vivek Ramaswamy stepped down from the initiative Monday, apparently eying a 2026 gubernatorial run in Ohio.
The order says it serves to “advance the President’s 18-month DOGE agenda,” but omits many of the budget-cutting and workforce-slashing proposals during Trump’s campaign. Rather, the order positions DOGE as a technology modernization entity rather than an organization with direct authority to enact sweeping fiscal reforms. There is no mention, for instance, of trillions in budget cuts or a significant reduction in the federal workforce, though the president did separately enact a hiring freeze throughout the executive branch Monday.
“I can’t help but think that there’s more coming, that maybe more responsibilities will be added to it,” Susan Dudley, a public policy professor at George Washington University, told the Daily Caller News Foundation. Dudley, who was also the top regulatory official in former President George W. Bush’s administration, said the structure of the new USDS could impact the recent lawsuits against the DOGE effort.
“I think it maybe moots the lawsuit that’s been brought for it not being FACA,” Dudley said. “So if this is how it’s organized — that it’s people in the government who bring in these special government employees on a temporary basis, that might mean that the lawsuit doesn’t really have any ground.”
Three organizations — the American Federation of Government Employees (AFGE), National Security Counselors (NSC) and Citizens for Responsibility and Ethics in Washington (CREW) — separately filed lawsuits against DOGE within minutes of Trump signing the executive order. The suits primarily challenge DOGE’s compliance with the Federal Advisory Committee Act (FACA), alleging the department operates without the required transparency, balanced representation and public accountability.
The order also emphasizes not “be construed to impair or otherwise affect … the authority granted by law to an executive department or agency, or the head thereof; or the functions of the Director of the Office of Management and Budget relating to budgetary, administrative, or legislative proposals.”
“And the only mention of OMB [Office of Management and Budget] is some kind of boilerplate at the end — that it doesn’t affect that. But that’s kind of general stuff you often see in executive orders,” Dudley continued, adding she doesn’t “have an inside track” on whether further DOGE-related executive orders will follow.
“It’s certainly, certainly more modest than I think Musk was anticipating,” Dudley said.
Trump’s order also establishes “DOGE Teams” consisting of at least four employees: a team lead, a human resources specialist, an engineer and an attorney. Each team will be assigned an executive agency with which it will implement the president’s “DOGE agenda.”
It remains unclear whether Monday’s executive order comprehensively defines DOGE, or if additional orders will be forthcoming to broaden its mandate.
From Conservative Party Communications
The Hon. Pierre Poilievre, Leader of the Conservative Party of Canada and the Official Opposition, released the following statement on the threat of tariffs from the US:
“Canada is facing a critical challenge. On February 1st we are facing the risk of unjustified 25% tariffs by our largest trading partner that would have damaging consequences across our country. Our American counterparts say they want to stop the illegal flow of drugs and other criminal activity at our border. The Liberal government admits their weak border is a problem. That is why they announced a multibillion-dollar border plan—a plan they cannot fund because they shut down Parliament, preventing MPs and Senators from authorizing the funds.
“We also need retaliatory tariffs, something that requires urgent Parliamentary consideration.
“Yet, Liberals have shut Parliament in the middle of this crisis. Canada has never been so weak, and things have never been so out of control. Liberals are putting themselves and their leadership politics ahead of the country. Freeland and Carney are fighting for power rather than fighting for Canada.
“Common Sense Conservatives are calling for Trudeau to reopen Parliament now to pass new border controls, agree on trade retaliation and prepare a plan to rescue Canada’s weak economy.
“The Prime Minister has the power to ask the Governor General to cut short prorogation and get our Parliament working.
“Open Parliament. Take back control. Put Canada First.”
‘This Is So Disgusting’: Joe Rogan Unloads On Gavin Newsom For ‘Creepy’ Behavior In Front Of Wildfire Wreckage
Trump Talks To China Leader Xi Jinping About Several Topics As President-Elect Readies Himself For White House
Sweeping Deportations to Begin in Chicago Day After Inauguration
Coup in Romania – Fascinating interview with Presidential hopeful Calin Georgescu
-
Alberta1 day agoIs There Any Canadian Province More Proud of their Premier Today…
-
Business2 days agoUK lawmaker threatens to use Online Safety Act to censor social media platforms
-
Brownstone Institute2 days agoThe Deplorable Ethics of a Preemptive Pardon for Fauci
-
Business2 days agoCarney says as PM he would replace the Carbon Tax with something ‘more effective’
-
Business2 days agoLiberals to increase CBC funding to nearly $2 billion per year
-
Alberta2 days agoTrump delays implementation 25% tariffs: Premier Smith response
-
International2 days agoBiden preemptively pardons Fauci, Cheney, Milley on way out
-
Daily Caller16 hours agoPastor Lectures Trump and Vance On Trans People, Illegal Immigrants