Layton, Corporate Tax Cuts and Economic Efficiency
With many economic pundits attacking Jack Layton’s proposed freeze on the corporate income tax rate at 2007 levels,Â it is worth noting that Layton has also proposed to extend the accelerated (two year) capital cost allowance on new investment in machinery and equipment. This latter measure is supportedÂ by the Canadian Manufacturers and Exporters, who heavily criticized the 2008 Budget decision to pahase it out.
A 2004 Department ofÂ Finance Working Paper “Taxation and Economic Efficiency” by Baylor and BeausejourÂ found that fast write-offs have a much bigger impact on economic efficiency than across the board cuts to the corporate tax rate. This is because the impact is entirely on new investment, while rate cuts primarily reward those who have invested in the past.
The paper can – at the time of posting – be found at: