The fifth in a seven-part series, “Taxes for the Common Good.”
Imagine you had access to $1.85 billion. What social issue would you choose to address? Housing? Childcare? First Nations’ education? Climate change? Newcomer integration? How about giving that money to large corporations to store away in their bank accounts? That is the way our federal government has effectively answered this question by favouring corporate tax cuts over investments in Canadian well-being. We need our political leaders to shift their priorities in favour of our collective benefit. An increase of just one percentage point in the corporate tax rate would generate an additional $1.85 billion in federal revenue. Imagine the possibilities!
Taxes Provide Good Value for Money
Our tax dollars pay for libraries, roads, schools, health care, income supports, newcomer services, and more. But private corporations also benefit from this public infrastructure. Corporations therefore have an obligation to help sustain the public services and physical infrastructure that contribute to their productivity and enable them to generate wealth.
More equal societies are healthier societies; they also have higher levels of social cohesion and are safer and more secure. A fair, progressive tax system, is a smart tax system. When those who have the most, pay the most, everyone benefits – and the economy benefits too. This applies to both individuals and corporations.
Not all corporations are the same. Variations in wealth also exist in the business world. Just as low-income Canadians feel the pinch of higher expenses more quickly than others, small companies (think creative entrepreneurships or local mom-and-pop-shops) don’t have the same means as multi-million dollar corporations. Large tax bills in this context present real challenges.
The Wealthy Corporate Sector
By and large, however, corporate profits are reaching record levels and the share of taxes paid to government by corporations has been trending down. Successive cuts in recent years have rendered Canada’s combined federal and provincial corporate tax rates the second lowest among G7 countries, and considerably lower than U.S. rates. Corporate taxes now make up roughly 14% of federal government revenues, down from over 20% before 1970.
The case for corporate tax cuts has been made on economic grounds – that tax cuts will enhance economic performance. In reality, however, it simply doesn’t play out that way. A study that tracked 198 of the top Canadian companies that had year-end data from 2000 to 2009 revealed the companies were making 50% more profit and paying 20% less tax in 2009 than in 2000. The number of jobs created by these corporations was actually lower than the average employment growth in Canada. And now, these record profits sit idle in bank accounts. Between 2000 and 2014, a period when corporate taxes fell to record lows, the total cash reserves of private, non-financial corporations grew to $673.5 billion, an increase of nearly 370%.
Lost Programs and Opportunities
Tax cuts provide marginal benefits to the corporate sector. But regular Canadians pay dearly as the balance between individual and corporate taxes continues to shift. In 2014-15, for the first time ever, more than half of the federal government’s revenue is projected to come from personal income taxes, up from a 30% share 50 years ago.
Small Change, Big Impact
Remember that $1.85 billion? Have you thought more about how it could – or should – be spent? Canada is a tremendous country to be sure, but there are so many challenges that need to be addressed. And, with the national wealth that we have, there is really no reason why they shouldn’t be.
Beginning with a 1% increase in the corporate tax rate, our federal government would have sufficient revenue to make a significant difference in the lives of people on the margins of Canadian society. It wouldn’t be enough to address all that ails us. But it would be a good place to start.
Karri Munn-Venn is a policy analyst at Citizens for Public Justice, a national organization of members inspired by faith to act for justice in Canadian public policy. Taxes for the Common Good: A Public Justice Primer on Taxation is available free at www.cpj.ca/taxes-and-common-good. Follow Karri and her colleagues on Twitter @karri.munnvenn and @publicjustice.