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Corporate Tax Cuts Have Made Canada a Poorer Country

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Even though we are neighbours, Canada does not follow the U.S. in spending astronomical amounts of funds to develop and purchase weapons and use them in wars. Our health care expense is way lower than that of the U.S. The U.S. spends about 17 per cent of its GDP on health care, whereas the Canada medical share is around 11 per cent.

So where has the Canadian government's money gone?

Back in the 1960s and 1970s, the federal government's corporate income tax rate was 37 per cent. In 1980, it was reduced to 36 per cent.

In the 1980s, Mulroney's Conservative government reduced the corporate tax rate by eight percentage points. Due to a huge deficit and a drastic increase in the national debt, the corporate tax rate was maintained at 28 per cent in the 1990s.

Then from 2000 to 2004, it dropped from 27 per cent to 21 per cent. It was then Liberal Finance Minister, Paul Martin, who drastically cut the corporate income tax by six percentage points in three years! When the Liberals formed government, in order to balance the budget, Martin implemented huge cuts in government spending and health care funding. Martin basically downloaded the cost to the provincial and municipal governments.

However, when the economy bounced back and the revenue increased, Martin did not restore the government services funding; instead, he gave it away in generous corporate income tax cuts.

Then the Conservatives returned in 2006. Two years later we had the world financial tsunami, with recession and government finances back in red. That did not stop the Conservatives from further lowering the corporate income tax, from 21 per cent to 15 per cent.

Martin was excessive, but the Conservatives are reckless. The world and Canada were facing economic difficulties. Less corporate income tax did not boost the economy.

There are many international examples in the past two decades, be it Japan, Hong Kong or the U.S., which demonstrated that simply lowering corporate tax does not reverse the economy. If the economy could be boosted that easily, then Japan would not need to suffer their long and painful recession.

The big corporations and the right-wing think tanks, with the help of the corporate media, are keen to promote this kind of "tax cut solution." But I've not seen these free market guardians condemn the Hong Kong government for interfering with the financial market in the Asian financial crisis some years ago. Their inter-relatedness with regard to profits and interests are all too clear.

The fact is, it's the big corporations which truly benefited from corporate income tax cuts, and these are corporations with huge profits. It's because a money-losing business, especially during an economic downturn, basically doesn't need to pay any corporate income tax.

For small- and medium-size businesses, even when there is a profit after deducting all the expenses and depreciation, the tax being reduced is limited. Say if a small business has a profit of $100,000, 5 per cent of that is merely $5,000. However, to those big corporations which are making record profits year after year, a 5 per cent tax cut of a $2 billion profit is $100 million!

Indeed, this is how taxpayers' money has been given away to big and wealthy corporations. The Liberal Paul Martin's tax cuts had given away $100 billion! Yet, Canada's world competitiveness went downhill; our ranking dropped from #5 to #16 globally.

Surely the corporate media and the right-wing think tanks would scream and say, if we don't cut tax, the big corporations will leave and move their business elsewhere. Nonsense. Many studies conducted on CEOs have shown that, corporate tax is not a major factor in terms of business investment and operation. The more important factors are borrowing costs, skilled workers, professional expertise, electricity rate, transportation network, market penetration and land cost, etc.

When a big corporate invests and does business in Canada, it's because there is a market and it's profitable. It's that simple! If they cannot make a profit in Canada, they wouldn't stay even if the tax rate were zero.

From nearly 40 per cent in the 1970s to 15 per cent currently, how excessive have been the corporate tax cuts? Let's look at it from another angle.

Do you know the rate of our federal personal income tax? For the top earners, it's 29 per cent. It's almost double that of the corporate income tax rate.

In addition, personal income tax is levied differently. Our personal income tax is charged on our gross income, that is, before we pay rent/mortgage, car loan/lease, food and other living expenses.

For corporate income tax, the business can first deduct all the expenses like rent, labour, car lease and other expenses before paying the tax. If the business income cannot cover all the business expenses, then the company pays no tax. If there is a surplus, then the federal government levies a tax on the profit.

As you can see, not only is the corporate income tax rate much lower than what individuals are taxed, there is a huge difference in terms of how it's calculated. If our personal income tax were calculated like the business tax, perhaps most of us would not need to pay tax.

40 years ago, the share of personal income tax revenue in the federal government's total revenue was 30 per cent; it was almost 50 per cent in 2013. But the share of corporate income tax has dropped from 20 per cent to 13.6 per cent today. It's obvious that the Liberals and Conservatives have shifted the corporate tax burden to the people.

The U.S. federal corporate income tax has been maintained at 34 to 38 per cent (with taxable income of $500K and over), so why does Canada have to reduce it to 15 per cent?

The more absurd part is, since Canada's rate is much lower than that of the U.S., U.S. companies operating here in Canada have to pay the differences in rates to the U.S. government. Not only does the low tax rate not matter to these U.S. companies, our government basically gives away the tax money to the U.S.

In 2013/14, our federal government collected $34.6 billion in corporate income tax. If our rate were 30 per cent, i.e. 5 per cent lower than our U.S. neighbour, the federal coffer would have collected over $30 billion additionally. This is a huge sum of money and now you know why Canadian government is always poor -- this are money that could be used on health care, child care, senior care, veteran support, advance education, job training, retirement, environment, social housing, infrastructure, or it could be used to subsidize Canada Post or CBC, etc.

In this federal election, the Conservative party and the Liberal Party have refused to increase corporate income tax. No wonder people said voting for the Liberal Party is the same as voting for the Conservatives.

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