Corporate Tax Cuts

[nolanrh]

I can't remember which of the threads it was brought up that Harper's corporate tax cuts have been successful, but I've been doing a little reading on this, this morning and I thought I'd share.

Article on the apparent ineffectiveness of corporate tax cuts:
http://www.google.ca/search?sourceid=chrome&ie=UTF-8&q=canadian+corporate+tax+cuts+globe+and+mail

Here's one that's a little middle of the road:
http://fullcomment.nationalpost.com/2011/04/06/37-days-experts-can%E2%80%99t-pin-down-effects-of-corporate-tax-cuts-enter-the-politicians/

One that attempts to debunk the first one and shows that the tax cuts have led to increased investment:
http://m.theglobeandmail.com/report-on-business/economy/economy-lab/stephen-gordon/corporate-tax-cuts-a-look-under-the-hood/article1972965/?service=mobile

For me, it's mostly about striking the balance between corporations sharing their portion of the public cost of their operation and remaining an attractive destination for foreign investment in a global economy. It's fine and dandy to say that government revenue has increased based on these cuts, but if corporations are consuming public resources at a higher rate than the tax increases, we're getting a raw deal.

There are other ways to make Canada an attractive destination for corporate investment. For example. improving education increases the number of skilled employees available for corporations to utilize. Canada is a stable democracy with a ton of resources, a solid social support system, infrastructure and a favourable geographical location. We have close political and economic ties with the largest consumer in the world and are well suited for growth. It's important to remember that there are many other qualities that make us attractive to foreign investment beyond our corporate tax rate.

It'd be great to say, don't tax corporations, just take the income of their owners, but that may not be possible if those owners (shareholders) are outside our tax jurisdiction.

Right now we're sitting in the middle of the pack for developed nations, and I'm pretty content with that. What I'd like to see is the amount of $$$ that escapes untaxed to get an idea if this is even a problem.

Anyway, random morning thoughts.

[Al Czervic]

You are kind of mixing your fruit here Nolan…..Corporate taxes are based on NET income….those insane wages paid out to shareholders, board members and CAO’s are all paid out BEFORE any Corporate Tax is paid….in fact one of the reasons why these pay outs are so high in some cases is solely to pay less corporate taxes…no different than people will pay RRSP’s in certain amounts to be taxed into a lower income tax bracket.

Let’s not also forget though that those insane wages paid out are all subject to PERSONAL income taxes so in one way or another the Government will get a share of the revenue….of course personal income taxes also have their own tax deferral mechanisms as well.

Bottom line is that taxes can always to an extent be avoided or reduced in one way or another, ultimately off shoring can be a final option. This is ultimately why having higher corporate tax rates is counterproductive. Fortunately the Conservative’s have that one figured out. You are correct that having a well educated workforce and internal infrastructure are also important attractants to investment, but those things also cost money so if your labor costs are going to be higher, then they need to be offset by a lower corporate tax regime.

[nolanrh]

Shareholders aren't paid wages. They take their cut in the form of increased stock value or dividends. Corporate office holders/employees are not my concern.

The idea that a corporation would pay high salaries to avoid taxes doesn't make sense.

[Al Czervic]

Shareholders aren't paid wages. They take their cut in the form of increased stock value or dividends. Corporate office holders/employees are not my concern.

The idea that a corporation would pay high salaries to avoid taxes doesn't make sense.

I realize that…my intent was mostly to point out that often these pay outs are done in order to minimize the amount of income subject to corporate taxation, and more so if the Corporate tax rate is a significant one….

[WhatThe]

Corpoorate taxes seem to be a real issue for some and I was listening to the greens platform last night on the news- they would raise the rate to 19%. What is the current rate now?

[Al Czervic]

It was 18% last year….dropping down to 16.5% percent this year and set to drop to 15% next year (unless Iggy has his way with it)

[I Think]

Big corporations take a lot of their profit offshore when they export, which is very easy to do. Corps only pay tax on profits and they have tons of loopholes to avoid paying their fair share. A top corporate executive can also take parts of his income in one of the fiscal havens. Once you have the funds to be able to hire top notch accountants there are all sorts of loopholes you can jump through.

[WhatThe]

I'll be honest, Im not an economist, just a small business owner, but is four % that much of an increase? To 19%. Is that enough to discourage foreign investment? How do our rates compare with other G8 or G20 nations?

[NAB]

Big corporations take a lot of their profit offshore when they export, which is very easy to do. Corps only pay tax on profits and they have tons of loopholes to avoid paying their fair share. A top corporate executive can also take parts of his income in one of the fiscal havens. Once you have the funds to be able to hire top notch accountants there are all sorts of loopholes you can jump through.

And so far I have not heard one party suggest plugging the loopholes rather than increasing or decreasing corporate tax rates. I wonder why that is? Perhaps this whole tax rate issue is yet another red herring to divert attention from the real problems?

Nab

[WhatThe]

Big corporations take a lot of their profit offshore when they export, which is very easy to do. Corps only pay tax on profits and they have tons of loopholes to avoid paying their fair share. A top corporate executive can also take parts of his income in one of the fiscal havens. Once you have the funds to be able to hire top notch accountants there are all sorts of loopholes you can jump through.

And so far I have not heard one party suggest plugging the loopholes rather than increasing or decreasing corporate tax rates. I wonder why that is? Perhaps this whole tax rate issue is yet another red herring to divert attention from the real problems?

Nab

Nabs, your comment ties nicely with what I was asking, is this a red herring?