Up With Corporate Taxes

Progressives often present corporate-tax cuts as having transferred billions of dollars from the Canadian government to big business. This characterization is largely correct, but neglects the fact that many foreign-based corporations operating in Canada are also taxed on a worldwide basis by foreign governments. To the extent that corporations in Canada are affiliates of American and Japanese multinationals, Canadian corporate-tax cuts have simply transferred revenue from the Canadian government to the U.S. and Japanese governments.

As I argue in the following letter, printed in today’s Financial Post, recent corporate-tax cuts should be reversed because they do not increase our “competitiveness” in attracting American or Japanese investment. In fact, shrinking our fiscal capacity while expanding American and Japanese fiscal capacity undoubtedly makes us less competitive. On the other hand, these tax cuts may improve our competitiveness in attracting investment from other countries. At best, the billions of dollars forgone annually through low corporate-tax rates have conflicting effects on Canadian competitiveness.

Our loss U.S. gain?

Financial Post
Saturday, May 26, 2007

Re: A plan for Flaherty, Jack Mintz, May 23

Jack Mintz writes, “foreign companies (especially U.S., Japanese and U.K.) credit Canadian corporate taxes against home tax liabilities on income repatriated from Canada. The full elimination of Canadian corporate tax would result in a revenue transfer to foreign treasuries.” For exactly the same reason, cutting Canadian corporate tax rates below American, Japanese and/or British rates transfers revenue to foreign treasuries.

Because Canadian corporate taxes are already lower than American and Japanese corporate taxes, recent Canadian reductions have not decreased the global tax bill of American and Japanese companies operating in Canada. Far from making Canada more “competitive” in attracting American and Japanese investment, these reductions have simply redirected tax payments from Ottawa to Washington and Tokyo. Finance Minister Jim Flaherty should plug this revenue drain by restoring Canadian corporate tax rates to American levels.

Erin Weir, economist, Canadian Labour Congress, Ottawa

© National Post 2007

UPDATE (May 26): The following table is in response to Simon Black’s inquiry (below). The first three years are from the Mintz report. The most recent one is from KPMG.  Canada and the U.S. have ranges of values due to differing provincial and state corporate taxes.

Corporate-Tax Rates

 

1983

1990

1997

2006

Canada

45-53%

35-46%

38-46%

?-36%

United States

49-51%

34-42%

35-43%

?-40%

Japan

53%

52%

52%

41%

One comment

  • Thanks for this Erin. Where can we find stats that compare US, Japanese and Canadian corporate tax rates over the last 25 years or so?

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