Making you pay

Russell
Russell Wangersky
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It’s the time of year when income tax suddenly springs to mind. This year, the tax forms have a funny greenish colour when they make their way in their plastic sleeves into your mailbox. It’s strangely fitting: you’ll probably have a strangely greenish colour when you think about how much tax you pay.

There’s nothing implicitly wrong with taxes — they pay for the hospitals we use, the roads we drive on and the schools our children attend. Since the work has to be done and the bills have to be paid, about the best thing you can ask for is that the tax system fairly shares the burden amongst us all.

But right now, it doesn’t. (Bear in mind, this is a simplified take on a complex tax system.)

There’s been a lot in the media in the last few months about the latest changes to corporate tax rates.

The Harper government has continued to drive corporate taxes down, to the point that the federal share of corporate taxes is around 15 per cent, one of the lowest corporate tax rates in the developed world. With provincial taxes lumped in, the number rises to roughly 25 per cent across the nation, which sounds like a hefty percentage.

For example, that sounds sort of like the kind of number individual taxpayers ante up, too — if you have a taxable income of $42,000, for example, you pay about 19 per cent of your income in combined federal and provincial income taxes. If you’re at $60,000, you pay around 23 per cent of your income.

And that would only seem reasonable because, after all, corporations in this country are legally considered to be persons.

We’re all persons here — so we should be treated the same way.

Except there’s nothing quite as apples-and-oranges as the tax system. Corporations may be legal persons, but they’re very special persons indeed.

Functionally, income taxes (unless you’re self-employed) are based on your gross income, less some deductions — and those deductions are mostly for payments the government is taking from you anyway, like employment insurance premiums or Canada Pension Plan contributions.

Corporate taxes, meanwhile, are effectively based on a company’s net income, or profits.

Governments only take their cut from what’s left after all the costs are paid.

Imagine how little you’d pay if you were actually paying income taxes based on how profitable you were for the year.

What’s that? You weren’t profitable last year?

Exactly. Now, imagine if you were a corporation.

Before you even started paying tax, you’d be able to deduct the costs of doing business — in this case, the costs of doing your job.

Clothes? Clothes are not optional. If you want to work, you need clothes — their costs would be deducted from your employment income. Food? If you can’t eat, chances are you can’t work either. Housing? It’s not optional — and neither are insurance, utilities, city or town taxes or a host of other costs. Car? Bus fares? Tires for your bike? All of them are costs that come off before you set the bottom line. And the HST on those costs? Why, the HST would be gone as well — no more days of paying income tax on the money you’d have to use to pay other taxes, like fuel taxes.

Ah, you say, but what about luxuries, those little things that improve your life?

Hmm. Let’s consider that seriously. When was the last time you saw a manager or senior manager with the most basic cellphone available? How many corporate vehicles have you seen that are the cheapest ones on the lot? Exactly — since there’s wiggle-room built in for equipping staff at corporations, there should be wiggle room for all of us individual little “corporations” as well.

Just imagine if you had the choice — to either pay a fixed amount based on your income, or to pay 25 per cent of every dollar you had left at the end of the year.

It’s pretty obvious which one you’d pick, if you had that choice.

Which, of course, you don’t.

So when businesses cry about the rates they’ve been paying, remember that, compared to you, they’re crying crocodile tears — all the way to the bank.

Russell Wangersky is The Telegram’s editorial page editor. He can be reached by email at rwanger@thetelegram.com.

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  • The Economist
    January 12, 2012 - 09:14

    Mr. Phelps, if you take on the assignment of educating these commentors, you will have a massive job as the level of education is very low, as it is with all business people. Should you except this assignment we wish you well in your Impossible Mission!

  • GRISHA
    January 11, 2012 - 10:46

    While correct in that corporatins are "very speical pesons" they certainly are not living, breathing souls. They are simply accounting devices. Any taxes paid by corporations are essentially double taxed for the same activity when taxes are paid by shareholders. It is easy for those who want to influence policy to point to some faceless group of evildoers, "the Corporations" to try to drive for higher payments by others for benefits enjoyed by government officials and bleeding heart loosers. There is plenty to be fixed in the corporate world but one thing is not the Canadian tax structure. Further, if your indivivual tax burden is as you have said (probably more like Wild Rose stated) you should take your winnings and leave the table.

  • Colin Burke
    January 11, 2012 - 07:47

    Wild Rose, you are very nearly completely correct. But the government's maintaining the military is one of the things which enable it to practice theft as "taxation." Our military ought to be a militia of all able-bodied male citizens maintaining ourselves as our military. That this would not be practicable in a society surviving on its members' working for others in specialized jobs so as to make our defence itself a specialized job, is one of the great faults of our great capitalist economic system.

  • Petertwo
    January 11, 2012 - 05:55

    Interesting observation Russel, Each family is a corporation being made so by taxing it as a total entity particularly where husband and wife work and are taxed on the total of their earnings, not individually. I like your idea of deductions for the running of this corporation Equal rights indeed.

    • Carl
      January 11, 2012 - 12:04

      Actually, PeterTwo, families and married couples are never "taxed on the total of their earnings." However, retired couples are allowed to split pension incomes for tax purposes. This measure to allow seniors to save money was introduced by the federal government a couple of years ago, and they are promising to allow all married couples to split their incomes for tax purposes once the budget is balanced. Let's hope that happens soon!

  • Lane
    January 10, 2012 - 22:18

    Wangersky is missing some key points, as usual: 1. When corporations are hit with higher taxes, they pass on the cost to their employees and consumers. 2. If Canada's corporate tax rate is higher than that in other jurisdictions, then corporations will use accounting measures to shift their profits to those other jurisdictions. That means they will pay taxes in those other jurisdictions instead of in Canada. It also works the other way around. If we have lower corporate tax rates, more corporations will choose to pay their taxes in Canada instead of elsewhere. 3. Since the federal Conservative government began phasing in its corporate tax rate reductions five years ago, corporate tax revenues in this country have actually increased each year, which illustrates point 2 above.

  • Wild Rose
    January 10, 2012 - 08:32

    Taxes are theft! I pay 60% of my income in taxes and we should lower taxes for those of us who work hard. Corporations shouln't have to pay tax because it makes them less profitable and when they are their stocks go down which effects the stockholder which i am. I never took a cent from this great counrty and it makes me sick that there are people who are welfare cheats and enviromentalist and immigrants and the so-called poor who are bleeding the country dry. People should stant up on their own feet. The only thing the goverment should do is fund the police and the army and let the private sector do everything else. People just dont' respect private property and hard working taxpayers and if they don't work they should look out for them selves!