Business lobbyists and their Conservative friends are arguing that Canada should do as U.S. President Donald Trump has done and slash corporate taxes.
They fail to point out that Canadian taxes for corporations have been significantly lower than those in the United States for many years.
Trump recently reduced corporate taxes, slashing the federal rate to 21 per cent from 35 per cent, giving the U.S. a combined average federal/state rate of about 26 per cent.
Canada’s combined average was already in that range thanks to billions and billions in tax cuts handed out by previous Liberal and Conservative governments.
Instead of embracing this race-to-the-bottom idea again, federal and provincial governments should take a big, deep breath. In other words, keep calm and carry on.
But let’s have a good look at whether across-the-board tax cuts even make sense.
If tax policy levers need adjusting, there is a more effective and sophisticated approach that can be taken, rather than a swinging a machete through the corporate tax rate. Walmart doesn’t need a tax break.
For example, targeting tax incentives to those who need the support in order to invest in machinery, productivity and wages makes for smarter policy. It’s ironic how those who argue against universal social programs have no problem supporting universal tax cuts for corporations. No matter the problem, it’s their panacea.
Why give tax cuts to corporations stockpiling cash on their balance sheets? Why give them to corporations socking away billions in global tax havens rather than investing the capital in Canadian jobs and wages? Why give them to companies who are going to make certain investments anyway?
It is bad policy and it depletes much needed revenues to invest in priorities like child care, more affordable or free post-secondary education, better health care and green transit.
And it is leading to a place where researchers predict in the next 10 to 20 years, corporate taxes will be a thing of the past unless massive collective action is taken. That’s how effective corporations have been at convincing governments to do their bidding.
A new study by researchers at the University of Copenhagen and the University of California, Berkeley, entitled “The Missing Profits of Nations” details how dramatic the slashing of corporate taxes has been across jurisdictions and how much corporate profits still go untaxed because they are shifted offshore.
World, we have a problem. And it’s getting worse.
As the Missing Profits study pointed out, “the most striking development in tax policy throughout the world over the last few decades has been the decline in corporate tax rates. Between 1985 and 2018, the global average… has fallen by more than half, from 49 per cent to 24 per cent.”
Something’s got to give. This race to the bottom means governments have less and less revenues to invest in the social fabric of their nations — a social fabric that corporations depend on just like the rest of us, whether it is modern infrastructure or strong public services.
Just how much of Trump’s $1.5 trillion tax cut to corporations will end up as part of a profit margin and/or sent overseas to a tax haven rather than invested in jobs and wages for American workers?
The organization, Canadians for Tax Fairness, estimates that Canadian companies have shifted about $200 billion into tax havens. Assets that go untaxed. This is costing federal and provincial governments billions in lost taxes every year.
Canada should determine how much of its corporate tax cuts have been lost to tax havens or are sitting on balance sheets instead of being put to good economic use.
According to Missing Profits, major multinational corporations in 2015 shifted a whopping 40 per cent of their profits or about $600 billion into tax havens. Gabriel Zucman, one of the report’s authors from the University of Copenhagen, said in the Washington Post that because multinationals have seen their rates fall so much, this means “other actors in the economy” such as local businesses and citizens much pay more in order to pick up the slack.
The organization, Canadians for Tax Fairness, estimates that Canadian companies have shifted about $200 billion into tax havens. Assets that go untaxed. This is costing federal and provincial governments billions in lost taxes every year.
Zucman says policymakers should consider just how much they are underestimating economic growth and under-collecting corporate tax revenues because they are missing the profits that have been shifted by multinationals to tax havens.
Governments must start tackling tax havens and “cracking down on profit shifting.” They need to find ways to tax companies like Google, Apple and Facebook, including taxing profits where companies register their sales.
So, Canadian government, resist the call for more across-the-board tax cuts. Instead, think smart policy, and for goodness sake, figure out a way to join with other countries and crack down on tax avoiders, before it’s too late.
Lana Payne is the Atlantic director for Unifor. She can be reached by email at [email protected]. Twitter: @lanampayne Her column returns in two weeks.
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