A lessened corporate tax rate lacks economic payoff
By Dylan Hackett, News Editor
[dropcap]A[/dropcap] recent study conducted by the Canadian Labour Congress has concluded that falling federal corporate tax rates are not as beneficial to the economy as politicians might have claimed. The prospected boosts to reinvestment into operations and expansion have instead been traced to increased investment into financial assets and dividends—at the cost of staggering amounts of government revenue.
The study estimates that $2 billion of federal revenue is lost per one tax percentage point dropped. Since 2000, the federal government has dropped the tax rate from 28 per cent to 15 per cent under the policy of both the Liberal Party and the Conservative Party.
The study cites, “ according to Statistics Canada, total corporate cash reserves of private, non-financial corporations grew from $157 billion in the second quarter of 2001, to $477 billion in the second quarter of 2011.”
The largest non-financial corporation to benefit from the plummeting tax rate is Saskatchewan’s Potash Corporation. Second in gained holdings is George Weston Ltd, raking in $4 billion in financial investment since 2000—money that doesn’t come into the grocery and food businesses it owns.
[quote style=”boxed”]Lower corporate tax rates are a major contributor to the cause of government deficits, and also caused the government to cut $4 billion worth of financing to other programs.[/quote]
“Companies have also chosen to retain higher after-tax profits as financial assets, as cash, and as longer term assets, not counting investments in capital stock,” cites the report.
“At the same time as corporate tax cuts are being paid out to investors, corporate Canada is also building an enormous pile of mainly financial assets. Canada’s biggest non-financial companies have more than doubled their holdings of such assets, from $37 billion in 2000, to $87 billion today,” says the study. This money only stimulates the already healthy banking and financial industries.
Lower corporate tax rates are a major contributor to the cause of government deficits, and also caused the government to cut $4 billion worth of financing to other programs. The cycle removes money from social programs and moves it into corporate coffers where the money is less likely to stimulate the economic growth it is promised to do.
The study concludes that the falling corporate tax rate increases financial holdings and “not an increase in capital stock and other investments which boost productivity and sustain and create good jobs. Government revenues have taken a big hit, without the expected upside of a stronger and more productive economy. The winners have been those who own company shares, notably Canada’s highly paid CEOs and other members of the top 1%.”