Everyone Gets A Fat Cheque?

[Castuserraticus]

So people think they're going to get a fat cheque in the mail from the increased royalties eh? From the Oct. 31 Globe and Mail.

 

Breaking News from The Globe and Mail

The untenable position of Jack Layton

 

Neil Reynolds

 

Wednesday, October 31, 2007

 

OTTAWA — By unequivocally championing big corporate tax cuts, Liberal Leader Stéphane Dion has given Finance Minister Jim Flaherty lots of political cover for whatever corporate cuts he wants to make. What are the chances that NDP Leader Jack Layton could be persuaded to join this remarkable Dion-Flaherty accord? They are, for certain, slim. But perhaps he could be shamed. With more certainty than ever, economic research now indicates that workers effectively pay all corporate taxes through lost wages. Has the time not come for progressives to throw their support behind corporate tax cuts?

 

Working for the Oxford University Centre for Business Taxation, economists Wiji Arulampalam, Michael Devereux and Giorgia Maffini set out to examine "the extent to which corporate income taxes are shifted on to the work force in the form of lower wages." Using the ORBIS financial database, which contains financial information for more than nine million companies, they analyzed the profit and loss statements of 23,215 companies, from 10 countries, for a 10-year period, 1993 to 2003. They ignored small businesses, looked only at unionized companies, and, when dealing with multinational companies, accepted only unconsolidated financial reports from subsidiaries.

 

In the end, they reported that corporate income taxes have a "significant negative impact" on workers' wages. In itself, this was not surprising. Many economists have identified the same effect. But these economists quantified the impact. For an additional dollar in taxation, workers in the short term take a 54-cent hit; in the long run, a $1 hit. Or more. "A $1 rise in tax liability," they say, "results in a fall in worker compensation in excess of $1." Corporate taxes, in other words, can be a deadweight loss. As capital retreats from higher tax rates to lower tax rates, per-worker productivity falls; the lower the productivity, the lower the wages. And the smaller the country, the more pronounced the impact.

 

You can't justify corporate taxes as a mechanism to make the rich pay. In economic terms, corporate taxes must be regarded simply as another cost of doing business. The higher the corporate tax, the higher the cost of doing business. In a statement that appears self-evident, but apparently isn't in some circles, the Oxford economists observe: "Wage rates closely correlate with profits."

 

This was precisely the point that Jack Mintz, Duanjie Chen and Andrey Tarasov made this past summer in a C.D. Howe Institute backgrounder report on tax reform in Canada.

 

"Although politicians often claim that taxes levied on capital investments fall on the rich and the powerful," they observed, "more evidence suggests that workers bear the brunt of corporate taxation." Corporate taxes, they said, "ultimately fall primarily on labour incomes."

 

The C.D. Howe report, citing the Oxford research, examined Canada's corporate tax rates as a cost of doing business in Canada. It found this cost "strikingly high across the provinces." Notwithstanding the tax cuts that governments have introduced in the past couple of years, "the impact of corporate taxes on the tax-inclusive cost of doing business in 2011 will have changed little from 2007 in most provinces."

 

Ontario imposes the highest cost. Corporate taxes formed 30 per cent of the cost of doing business in the province in 2006; they will still form 27 per cent of the cost when all anticipated tax cuts have been made in 2011.

 

Ontario imposes the highest corporate income tax as well: 14 per cent. And the highest tax on capital: 33 per cent. Further still, it imposes its provincial sales tax on capital purchases.

 

In a province struggling forlornly to remain a "have" province, these taxes are an absurd, bizarre and unnecessary handicap.

 

By contrast, New Brunswick's tax-imposed cost of doing business was only 20 per cent in 2006; and this cost will fall to 15 per cent in 2011. New Brunswick has reduced its tax burden on businesses incrementally for a number of years.

 

It now has the lowest corporate tax burden, expressed as a cost of doing business, in the country - lower even than Alberta.

 

It's only a matter of time until capital exits Ontario and heads for New Brunswick. (By contrast further, New Brunswick has lowered its capital tax to 2 per cent.)

 

As the C.D. Howe report noted, though, workers bear the brunt of all taxation, regardless of the myriad ways it is packaged - income taxes, sales taxes, payroll taxes, property taxes. Canada's effective tax rate on workers is now 45.9 per cent. Quebec workers pay the highest rate (at 49.8 per cent), Alberta workers the lowest (at 39.2 per cent).

 

Does Mr. Layton still insist that these pass-me-down corporate taxes should be protected - or indeed increased? Workers of Canada, unite!