Banks Call for Tax Cuts
While acknowledging the elimination of Ontarioâ€™s corporate capital tax and the slashing of federal corporate income taxes, the bankers argue that it is also imperative for Ontario to cut its provincial corporate income tax from 14% to 10%. As the original story and a barrage of letters in todayâ€™s Star point out, the government has recently provided much support to the chartered banks, which have responded by refusing to fully pass on interest-rate reductions from the Bank of Canada.
But even ignoring all of that context, the CBA’s claim does not stand up on its own terms. Banks in Toronto face a 33.5% corporate income tax rate (19.5% federal plus 14% provincial). The main market into which Canadian banks are expanding is the US, which has a 35% federal corporate income tax rate. Even where there is no state tax on banks – Nevada, Washington, and Wyoming – the US federal rate exceeds the combined federal-provincial rate in Ontario.
But the more relevant comparison is between Toronto and American financial centres. As the CBA notes, “Toronto is the third largest financial services centre in North America, after New York and Chicago.” New York and Illinois have state corporate income taxes of 7.5% and 7.3% respectively. Since state taxes are deducted from the income to which federal taxes apply, the combined federal-state rate is about 40% in these jurisdictions.
On top of that, New York City has its own bank tax, which has no municipal counterpart in Toronto. If Ontario is losing financial-sector jobs to the US, corporate taxes are certainly not to blame. Canadian corporate tax ratesÂ are already very “competitive” and should not be cut further.