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Showing results for tags 'corporate income tax'.
Economist Jason Brennan looks at the corporate tax rate in Canada and how it relates to corporate profits. You can read his summary of the findings here, but I will discuss them below. Economic thinking since the 1980s goes that loosening the tax burden on corporations will encourage them to invest in infrastructure, jobs, and other ways of expanding the economy. Help us help you is the mantra. So we embarked on a journey of slashing the corporate income tax rate in order to encourage jobs and growth. Every government since then has followed the same line of thinking. Mulroney's government cut the CIT from 36% to 29% during his tenure. The Liberals under Chrétien and Martin cut deeper from 28% to 22% by 2004. The Harper Government made a straight cut to the statutory rate from 21% to 15%, as well as eliminating the 1.1% surtax. The provinces also reduced their share of CIT from an average of 14% to 11%. Over the last 30 years, the CIT has been halved by successive governments. If conservative economic thinking is correct, then this should lead to exceptional growth. More money in the hands of the biggest corporations in Canada should mean more jobs, investment, and growth. Except that assumption never came true. As the corporate rate fell, so too did corporate infrastructure investments as a proportion of GDP. In fact, historically there is a positive relationship between infrastructure investment and the CIT. The lower the CIT the less investment. While the corporate rate was falling, the GDP ground to a trickle. Somehow I doubt that's what conservative economists mean by trickle-down economics. So what did the top corporations do with the savings afforded to them by reduced CIT if they weren't investing it in growing the economy, expanding their businesses, and providing jobs for Canadians? They sat on it. The graph above, created by Brennan, shows the Corporate Income Tax rate inverted and overlaid with corporate cash on hand, i.e., money being held by companies that are not financial institutions (this doesn't include banks). These findings point to a considerable mistake made by successive governments both federal and provincial over the last generation. Our weak economy may be at least in part a product of poor economic policy based on faulty assumptions. Trickle-down economics never worked and will never work. It's time to end the last 30 years of backwards thinking.