The true impact of corporate tax increases

I have been following the current election campaigns with interest as I am sure most business people have been.  Of particular interest is the Liberal governments desire to increase corporate tax rates because "Big Business" is the only one benefiting.  This is a huge lie which many Canadians unfortunately believe as well as some media simply because they are not informed.  Corporate income tax increases in fact do not discriminate between small and big businesses in fact they hit small business just as hard or harder if you take into account that most of these companies have 5 or fewer employees.  This is because unlike Personal Income tax the rate is not scaled according to the level of income, it is across the board at one rate.  Then taking into account that most businesses in Canada are small companies and dividends paid out to the owners are taxed at the personal income tax rates some of this money is in fact sometimes taxed TWICE.  I think most Canadian TAX Payers would shudder at the thought of this but it is true.

A look at just Ontario shows us that in 2004 97% of all Ontario Businesses were made up of either small or mid sized enterprises.  Courtesy of Statistics Canada and the CFIB - Canadian Federation of Independent Business. 

Please don't take my opinion as the basis for why an increase in corporate income tax levels is the wrong move by the Liberals.  The C.D. Howe Institute recently published an article stating that Governments would be far better to cut spending than to increase Corporate taxes.

"TORONTO—Governments would be better off cutting back on spending than increasing taxes, according to a new report from C.D. Howe Institute.
The report compared the impact of higher tax rates on provinces’ corporate income tax, personal income tax and sales tax bases.
Although personal income tax increases also carried a high cost, it was corporate tax hikes that really wound up costing governments, the report found.
It measured the marginal cost of public funds—the loss to society caused by raising an additional dollar of tax revenue.
In Ontario, Saskatchewan, Nova Scotia and P.E.I., reducing corporate taxes would bring gains over time, so that the offsetting provincial sales tax increase wouldn’t even be needed. Other provinces would be left revenue neutral.
“Instead of corporate or personal income tax increases, governments should use expenditure restraint to rebalance their budgets,” says Alexandre Laurin, C.D. Howe associate director of research.
“The most costly increase is corporate tax because it’s easier for businesses to adjust with measures like not investing and shifting capital to new jurisdictions —affecting the whole economy,” Laurin says.
The C.D. Howe report is just one of several in recent weeks to analyze the impact of cutting corporate tax rates.
In February, the University of Calgary’s School of Public Policy published a paper arguing corporate tax cuts have helped make Canada the most tax-competitive country of all G7 nations.
Another report in January, from Canadian Manufacturers and Exporters (CME), calculated that federal and provincial cuts would bring a net gain of 98,800 jobs to Canada’s economy.
The federal government plans to cut Canada’s corporate tax rate from 18 per cent to 16.5 per cent with a further reduction to 15 per cent planned for next year.
Opposition parties could decide to challenge that decision in the upcoming budget."

article courtesy of:  http://www.canadianmanufacturing.com/general/corporate-tax-increases-carry-highest-cost-report-26428

So if you own or work for a small business remember to take this into account before you cast your ballot in this Springs Election.  And please get out and vote, it is your right as a tax payer to have your say at the polls.