Corporate tax cuts benefit all Canadians
Globe and Mail columnist Eric Reguly recently bemoaned that the share of government revenue coming from corporate income taxes has fallen in Canada since the 1960s. Indeed, the share of federal revenue coming from corporate taxes was lower in 2015/16 (at 14 per cent) than the share in 1966/67 (17.5 per cent).
But Reguly is fundamentally mistaken in asserting that this represents a shift in the tax burden from corporations to individuals. It also ignores the important benefits that lower corporate taxes bestow on individual Canadians.
To begin, people ultimately pay corporate taxes. They do so either as shareholders through lower returns on investment, as employees through lower wages, or as consumers through higher prices.
And corporate taxes are particularly problematic as research overwhelmingly shows that they impose much larger negative effects on the economy compared to other types of taxes (including property and sales taxes). So reducing the government’s reliance on this economically damaging form of taxation is a way to improve the economy’s growth prospects.
Perhaps counterintuitively, research has found that cutting corporate taxes is linked to higher wages for average workers. Lower corporate taxes encourage investment and when businesses invest in machinery, equipment, and technology, workers are able to produce more and create higher valued output for each hour they work, increasing their productivity. Because increased productivity leads to higher wages, workers, in the end, benefit from corporate tax reductions.
Consider the results from a recent study that used individual-level data from Statistics Canada between 1998 and 2013. It found that, after controlling for other factors (such as a worker's age, education, union status, firm size, occupation, industry, and a host of economic variables), lower corporate taxes increased average wages. Based on the statistical results, a one percentage point drop in the combined corporate tax rate would increase the average wage of Canadian workers by between $254 and $390 the following year.
Fortunately, governments in Canada have recognized the damaging effects of corporate taxes. That’s why federal and provincial governments of all political stripes have lowered rates over the past decade and a half.
Despite Reguly’s innuendos, the reality is that corporate tax cuts have been a positive economic policy for all Canadians.