Business
Cut corporate income taxes massively to increase growth, prosperity
From the Frontier Centre for Public Policy
By Ian Madsen
Business groups are justifiably opposed to the federal government’s June 25 increase of the inclusion rate for capital gains tax. But there is another corporate income tax increase looming. It will come in the form of a 2018 corporate tax reduction that is set to expire starting this year. Ottawa ironically intended it to make Canada more competitive amid the 2018 tax reform and cut in the United States.
According to a study by Trevor Tombe at the University of Calgary’s School of Public Policy, Canada’s corporate income tax rate on new investments will jump from 13.7 percent to 17 percent by 2027. Even worse, for Canada’s high-value-added manufacturing sector, taxation will triple. Higher corporate income taxes, in a nation experiencing difficulties in encouraging domestic or foreign investment in new plant equipment, will struggle to reverse meagre productivity growth—a problem noted by the Bank of Canada.
Heavier taxation will hinder future improvement in incomes and the standard of living, making it a serious issue. Increasing income tax on businesses and investment will not increase prosperity and personal income. The legislation to make the 2018 provisions permanent is, alarmingly, not urgent to politicians.
At least one policy could make Canada more attractive to business, investors, and hard-pressed ordinary citizens. It would be to slash corporate income taxes substantially. Another is to make paying taxes easier, as Magna Corporation founder Frank Stronach suggested. It may surprise some Canadians, but Ottawa’s take from corporate income taxes is a relatively small. However, it is a fast-rising proportion of federal overall revenue: 21 percent in fiscal 2022–23, according to the government, up from 13 percent in fiscal 2000–21, notes the OECD.
Letting companies pay taxes and reducing the tax burden on ordinary people might seem OK to some. However, what happens is that every corporate expense, including taxes, reduces cash flow that reaches individuals. The money remaining in the hands of businesses could either be reinvested or paid out as dividends to owners. Let’s remember that owners are founding families, pension fund beneficiaries (employees, citizens), and ordinary individuals.
As there are fewer available funds, there will be a reduced capacity for capital investment. Investment is required to replace existing equipment, or add new equipment, devices, software, and vehicles for businesses. It only keeps companies competitive and makes employees more productive. This, in turn, makes the whole economy more profitable, thereby increasing taxes paid to governments.
As for the questionable reason for the tax increase, aiming to generate more revenue, recent experience in the United States is informative. The 2017 Tax Cut and Jobs Act reduced corporate income tax from 39 percent of pre-tax income to 21 percent. It resulted in U.S. federal corporate income tax revenue rising 25 percent from 2017 to 2021. Capital investment rose dramatically too, by 20 percent, a key goal of many Canadian policymakers.
Until recently, the Republic of Ireland had a corporate income tax rate of 12.5 percent, a key selling point in its successful efforts to attract foreign investment over the past several decades. Ireland, with few natural resources, is one of the richest and fastest-growing of the OECD nations, despite a bad real estate crash 15 years ago. Near the lowest in the OECD in tax burden, it nevertheless has a high quality of life and services.
If anything, Canada should cut corporate income taxes to below the levels of its main trading partners and rivals. To do so, it will have to extricate itself from the ill-conceived international treaty that compels signatory nations and territories to have a floor rate of at least 15 percent of pre-tax income. Ottawa seems enamoured of multinational agreements and organizations, so it may be highly reluctant to abrogate membership in this growth-dampening arrangement. The statutory federal corporate income tax rate in Canada is 15 percent, but all provincial governments impose their own levies on top of that, ranging from 8 percent in Alberta to 16 percent in Prince Edward Island.
By cutting taxes, we can pave the way for a brighter economic future, marked by increased productivity and the prosperity we all yearn for. This move will also ensure our international competitiveness, a goal we are currently struggling to achieve with our current 25 percent rate (OECD). Canada has a hard time attracting investors. Raising taxes will neither attract more of them nor encourage more investment from existing Canada-domiciled entrepreneurs and companies.
Ian Madsen is senior policy analyst at the Frontier Centre for Public Policy.
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.”
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