Corporate Income Taxes are Key

January 7, 2020

As a new decade begins, Fix Our Schools wants to focus on the big picture of how we can achieve the goal of ensuring that all publicly funded schools in Ontario are safe, healthy, well-maintained buildings that provide environments conducive to learning and working. Realistically, more money is required to invest in the critical public infrastructure we call schools if we are to see this goal achieved.

To increase the amount of public money available to invest in public infrastructure, our provincial and federal government have a few options: 

  1. Raise our personal income taxes.
  2. Find “efficiencies”, which is often a euphemism for cutting services to its citizens.
  3. Increase corporate taxes from big companies.

 

So let’s take a look at why the third option outlined above might be the best way to ensure governments have more money to invest in infrastructure and, specifically, let’s consider the Toronto Star investigative report entitled, “The High Cost of Low Corporate Taxes“, by Marco Chown Oved, Toby A.A. Heaps and Michael Yow. We’ve laid out some of the key points from the report to highlight why governments really ought to be considering corporate taxes as the key to being able to continue to invest in the public goods and services that citizens value.

  • “For every dollar corporations pay to the Canadian government in income tax, people pay $3.50. The proportion of the public budget funded by personal income taxes has never been greater.”
  • “The amount of tax most big companies in Canada pay has been dropping as a proportion of their profits for years, and not only because the corporate tax rate has been cut repeatedly. Canada’s largest corporations use complex techniques and tax loopholes to reduce their taxes significantly below the official corporate tax rate set by the government.”
  • “The financial filings of Canada’s 102 biggest corporations shows these companies have avoided paying $62.9 billion in income taxes (between 2011 and 2016)”.
  • “The 2011-2016 audited financial statements of all large Canadian corporations (those worth more than $2 billion) reveal they paid an average of 17.7 percent tax. During that time, the average official corporate tax rate in Canada for this group of companies was 26.6 percent. That 8.9 percent gap translates into tens of billions of dollars that could have been used to pay for the schools, roads, hospitals, police, and paramedics we all rely on.”
  • “In an average year, the 102 biggest companies in Canada pay $10.5 billion less than they would if they paid tax at the official corporate tax rate” of 26.6% (rather than taking advantage of tax loopholes). $10.5-billion could provide 1.2-million childcare spaces.
  • “The last year that corporations paid as much income tax as people was 1952. That year, the Canadian government was flush with money and used it to start setting up the social safety net with the establishment of the Old Age Security pension program. The private sector was also doing well, as corporate capital investments hit record levels and wages soared. The postwar boom was in full swing and the wealth was being enjoyed widely: Suburbs were exploding, schools and hospitals were built and new highways were laid down across the country.’
  • “Today (in 2016), Canada’s economy is the strongest in the G7, but municipal, provincial and federal governments have to borrow money every year, or dip into savings, to make ends meet. Inequality is at an all-time high. The rich are getting richer, the poor are getting poorer and public infrastructure — from transit to social housing — is failing and falling apart. While Canadian governments have trouble coming up with cash for public services, Canadian companies are rolling in dough.”
  • “Historically, businesses have argued that raising corporate tax will hurt investment. But StatsCan numbers show that drastic cuts to the corporate income tax rate over the last 20 years have not stimulated new business investment. Between 1997 to 2016, Canada’s corporate income tax rate was cut almost in half, from 43 percent to 26.7 percent. But investment in machinery and equipment and in intellectual property is still below the 1997 level as a percent of GDP.”
  • “Peter Nicholson, former Finance Canada deputy minister, says Canada has implemented a market-friendly tax rate but failed to reap the rewards in productivity and innovation.”
  • According to Gabriel Zucman, a Stanford University economist cited in the Toronto Star report, “Some countries, including Canada, have attempted to dramatically cut taxes on the wealthy and let corporate tax avoidance prosper. The result of these ‘trickle down’ policies which started in the 1980s is now clear: income and wealth have boomed for a tiny fraction of the population, but this has not benefitted the rest of the population at all. We must learn the lessons from this big natural experiment. The main lesson is that to have broad-based growth, we need an equitable tax system, where big corporations and high-earners in the financial industry and elsewhere pay their fair share.”

If Canadians agree that we want to continue to enjoy and perhaps even improve upon the public goods and services we have today, then we need to realistically consider how much funding is required and seriously consider looking at the role corporate taxes ought to play in contributing to public coffers.