Mar 23, 2011

Corporate tax cuts haven’t delivered


Yesterday I debated an economist from the Fraser Institute on CBC radio about the Federal Budget. One of the points of contention (and indeed, one of the core issues around which this budget will likely bring down the government) was the matter and merits of corporate tax cuts.

My point: corporate tax cuts simply have not delivered on their promise, and thus continuing to cut the corporate income tax rate to 15% makes no sense. Already we’ve seen the corporate tax rate fall from 28% to 18% over the last 10 years, with no noticeable effect on investment. The non-financial corporate sector is sitting on half a trillion dollars in cash right now, so why should we reward them with more tax cuts? KPMG already ranks Canada as having the second lowest corporate taxes in the industrialized world after Mexico (and look how well it’s working for them).

At one point, the Fraser fellow was lauding the benefits of the corporate tax cuts between 1997 and 2007. So I’m thinking, hey, he should be happy if we return to the 2007 corporate tax rate. Coincidentally, that’s precisely what this year’s Alternative Federal Budget proposes. Doing so would raise an additional $11 billion a year in government revenues — that’s a lot of money that can be put to better use.

For more excellent analysis of the federal budget, go here.

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