Increasing income tax on businesses and investment will not lead to an increase in prosperity and personal income.
Commentary
Business groups, primarily, are understandably opposed to the federal government‘s June 25 increase of the inclusion rate for capital gains tax. Another corporate income tax increase is on the horizon, following the expiration of the 2018 corporate tax reduction. Ottawa’s intention was to enhance Canada’s competitiveness compared to the 2018 tax reform and cut in the United States.
A study by Trevor Tombe at the University of Calgary’s School of Public Policy reveals that Canada’s corporate income tax rate on new investments will increase from 13.7 percent to 17 percent by 2027. Particularly concerning is the tripling of taxation for Canada’s high-value-added manufacturing sector. In a country struggling to attract domestic or foreign investment in new plant equipment, higher corporate income taxes will hinder efforts to improve productivity growth, as highlighted by the Bank of Canada.
Heavier taxation will impede the enhancement of incomes and the standard of living, presenting a significant challenge. Legislation to make the 2018 provisions permanent is not a top priority for politicians.
Implementing policies to make Canada more appealing to businesses, investors, and ordinary citizens could involve a substantial reduction in corporate income taxes. Another suggestion, proposed by Magna Corporation founder Frank Stronach, is to simplify the process of paying taxes. Surprisingly, Ottawa’s revenue from corporate income taxes is relatively small but represents a growing proportion of federal overall revenue, reaching 21 percent in fiscal 2022–23, according to the government, up from 13 percent in fiscal 2000–21, as noted by the OECD.
Reducing corporate income taxes could pave the way for a more prosperous economic future by enhancing productivity and competitiveness. This move could lead to increased taxes paid to governments, benefiting the overall economy.
A reduction in corporate income taxes would enhance the capacity for capital investment, which is essential for businesses to remain competitive and employees to be more productive. This, in turn, benefits the economy as a whole, leading to increased tax revenues for governments.
In the pursuit of generating more revenue, recent experiences in the United States are instructive. The 2017 Tax Cut and Jobs Act reduced corporate income tax rates, resulting in a 25 percent increase in U.S. federal corporate income tax revenue from 2017 to 2021. Capital investment also saw a significant rise, aligning with the objectives of many Canadian policymakers.
Canada should consider lowering corporate income taxes below those of its main trading partners and competitors. This may require withdrawing from the international treaty that mandates signatory nations and territories to maintain a minimum tax rate of 15 percent.
By reducing taxes, Canada can pave the way for a brighter economic future, characterized by increased productivity and prosperity. This approach will also bolster international competitiveness, a goal that is currently challenging to achieve with the current 25 percent rate (OECD).
Canada faces difficulties in attracting investors. Raising taxes will not attract more investors or encourage additional investment from existing Canadian entrepreneurs and companies.
Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.
