Corporate system created by the government, as a

Corporate
Tax Reduction

 

Corporate tax rates are a system
created by the government, as a compulsory contribution to state revenue.
Levied by the government, individuals and corporations are taxed based on their
total annual income. The highs and lows of corporate tax rates has been a
debatable topic among several economists around the world. In Canada, lowering
corporate tax rates will strongly affect Canada’s goals of economic growth,
reduced public debt and economic freedom. Fluctuation of unemployment rates,
total gross domestic product and offshore investments are strongly at play if
corporate tax rates were to be reduced. 

Corporate tax cuts believed to
strongly uplift the economy by creating new jobs for several Canadians is
simply a fallacy of cause and effect. Many Canadians wrongfully believe
decreasing corporate taxes will influence large corporations to invest the
money towards creating new jobs. In reality, rather than investing enlarged
savings from tax cuts into growth expanding industrial projects, Canada’s
corporate sector has increasingly stockpiled cash into their own pockets. Authorized
study performed by the Canadian Center for Policy Alternatives, authored by
Jordan Brennan, examines the outcomes of tax reductions in Canada. Through
several federal government changes from 1950 to 2018, the corporate tax rate
has plummeted rapidly from 52% to 22% (Watson 1). Even with a 30% tax rate
decrease presently upholding in 2018, corporations have repeatedly failed to
uphold their claims of using the money saved from a higher tax rate to creating
new jobs for Canadians. In the past 70 years, Canada’s corporate sectors
investments for new jobs and projects have declined from 17% to merely 11% in
2018 (Watson 1). Government fixation on tax reductions have increased corporate
“cash hoarding”, slowing economic growth. With lower tax rates, the government
now has a decreased amount of tax money collected, reducing the amount of money
put into the Canadian economy in an effort to expand.  Increased revenue from corporate taxes should
be used to stimulate the economy by putting the unused money towards
investments in infrastructure and social programs that create jobs and lower
living cost for Canadians. Alternatively, Canadian international corporations
claim lower tax rates will encourage many businesses to return to the Canadian
economy. Currently, in an attempt to avoid high tax rates, several corporations
legally outsource their main production processes to countries with low
corporate taxes and minimum wage. In early January 2018, Canada offshored $16
Billion worth of work to smaller underdeveloped countries for cheaper tax rates
(Isfeld 1). When large corporations begin to offer jobs to individuals in
underdeveloped countries, Canadians come face to face with unemployment. High
unemployment rates make it very difficult for the economy to grow, causing
poverty and loss of human resources (Mehta 1). As corporations continue to
outsource several jobs, local Canadians are faced with the challenge of
increased competition, when looking for jobs. As the demand for jobs increases
from the unemployed population, the supply for jobs continues to slowly
decrease. To add on, outsourcing also costs the Canadian economy an ample loss
of human resources. With decreased jobs in the market place, no constructive
use of the labour force is made. With unutilized human labour, Canada’s
potential production curve will begin the decrease as resources are not used to
the full capacity, decreasing total national output.

One of the most fundamental uses of
taxes is to invest the money into resources of economic growth. For the
upcoming 42nd provincial election of Ontario in 2018, The New
Democratic Party emphasises the increase of corporate tax rates to pay for
several new infrastructure developments (Kilpatrick 1). With risen rates, the
Canadian economy would benefit by gaining an additional $7 billion annually,
spending a total of $72.4 Billion in taxes, invested towards several different
initiatives aiming to improve the quality of life for all Canadians (Kilpatrick
1). Nearly 22 cents of every dollar of taxes is transferred to strengthen
federal programs of funding health care, veteran health care, public health
issues and post-secondary research (Kilpatrick 3). As of January 1st
2018, OHIP + was able to allows all Canadians to pick up a large variety of
prescription drugs for no charge, funded by incoming tax money. Nearly 29 cents
of each dollar of tax of the nation’s income is invested towards security and
infrastructure. The money covers national defence, the Royal Canadian Mounted
Police, border patrol and the Department of Justice. Keeping crime off the
streets, Canadians are provided with the privilege of security and promise of
justice. Corporate tax is used to fund several different programs across
Canada, operating primarily to improve the standard of living of all Canadians.
By providing additional incentives to Canadians, the government is able to
motivate individuals to fuel their desire to work. As individuals continue to
work hard in their respective jobs, the Canadian economy has the potential to
increase their total production output An increased amount of output raises
Canada’s total GDP, allowing Canada to output more than it is being imputed through
global trade, brining additional profit to the economy. To further incentivise,
the promising government body will working towards accomplishing their goal of
reduced public debt, claiming a $3 billion surplus will be remaining after all
expenditures and investments have been paid. The remaining money will be used
to decrease a portion of Canada’s burdening national debt.  As the economy expands, the public debt
becomes less significant, becoming a small issue for the future youth of Canada.
Corporate taxes helps the Canadian government successfully work towards their
goal of economic growth by increasing the standard of living for all Canadians..
On the contrary, while collected taxes is beneficial to Canadians and the
economy, it undermines Canada’s pressing goal of economic freedom. Economic
freedom allows corporations to spend or save their money according to their
will. By collecting large sums of taxes through corporations, the government is
forcefully taking away a portion of the corporation’s earnings as a
nonnegotiable requirement. As business owners now have less power over their
earnings, investors and entrepreneurship is decreased as a result (Holcombe 1).
With high corporate tax rates, investors are less likely to extend their
resources to new businesses (Holcombe 1). With lowered tax rates, corporations
are at the liberty to provide their employees with higher salaries (Holcombe 2).
An increase in a source of income, also creates an increase in the overall
spending capacity of the individual. With a higher income, individuals can now
spend money on item based on their personal factors of demand. As individuals
spend higher amounts of liquid capital, the economy is quick to gain the extra
cash. Following Adam Smith’s school of thought, free markets and minimum
government interference are the key to a successful economic system.  Analyzing Smiths “invisible hand”,
individuals pursing their own interests are lead to do, as if by an “invisible
hand”, what is best for society as a whole. With lowered tax rates,
corporations will be able to provide for their employees in a much more
sustainable manner. An environment of economic freedom will attract the inputs
necessary to produce economic growth.

Several large corporations have
intent fully taken advantage of the Canadian taxing system, engaging in several
“loopholes” to avoid paying tax on international profits. Since elected, the Liberal
government has promised to battle tax evasion and tax avoidance, spending
millions to reinforce the investigative branch of the Canada Revenue Agency
(Oved 1). Canadian corporations are funnelling money into offshore tax havens,
sacrificing up to $55 Billion in lost revenue for the economy over the past
five years (Oved 1). To combat tax avoidance, Canada joined an initiative
created by the Organization of Economic Co-operation and Development (Oved 2).
To make tax havens more transparent, Canada began to sign Tax Information
Exchange Agreements (TIEA) with commonly used tax havens such as Cayman
Islands, Isle Of Man and British Virgin Islands (Oved 2). During the same time,
the tax code was altered to allow any Canadian doing business in a TIEA partner
country to bring profits back to Canada, tax free (Oved 3). According to
Statistics Canada, corporations have stockpiled approximately 50% of their
total profits in several tax havens around the world (Oved 2). Canada is
dramatically loosing revenue in offshore investments, obtaining very little in
the form of taxes. For every $100 dollars sent from Canada to Panama, only $1
has returned back into the Canadian economy (Oved 4). As Canada looses large
amounts of money to offshore corporate investing, the Canadian economy gets to
keep a very small portion of all corporate income. With such reduce rates, the
government is unable to provide funding for future advances, depriving the
economy of new developments. A prime example of a corporation taking advantage
of the legal tax system is the popular athletic appeal manufacturer, Gildan
Active wear. In late 2017, Gildan declared an income of more than $1.3 Billion,
paying only $37.9 Million in taxes, equivalent of a 2.8% annual tax rate (Oved
4). Gildan was able took advantage of the tax rates on several foreign
subsides, reducing the tax bill by over $384 Million. Alternatively, as many
consider tax havens to ruin the economy, investing in offshore tax havens is a
completely legal procedure in Canada. While several corporations enjoy little
no no tax rates in several off shore havens, international investing has also
driven down the personal income rates in Canada. As large corporations continue
to put their money offshore, the Canadian government is discouraged to act up
on the growth tax policy. Since tax havens have started being widely used,
personal income tax rates have decreased from 67% in 1980 to 42% in 2018
(Mitchell 1). Canadian politicians were quick to acknowledge it is better to
have modest tax rates and collect more revenue for the economy, than to spike
up rates dramatically, collecting very little in revenue. Offshore havens also
provide the highest level of privacy and security for all corporations. As
personal files are not accessible to anyone, even the government of several
havens, personal company files which secretive information are kept from prying
eyes. Compared to Canada, tax havens offer a must higher level of security for
sensitive information, compelling several corporations to invest overseas. As
many will try to take advantage of loose files, it is in the best interest of
the Canadian economy to keep their files as hidden as possible.

In conclusion, after closely
analyzing both the positives and negatives impacts of lowering corporate tax
rate on the Canadian economy, it would be in the best interest of Canada to
refrain from reducing the present corporate rate. Large corporations have
repeatedly been taking advantage of Canada’s taxation system, twisting the
rules to solely benefit them as a company. From continuously failing to use
reduced tax to improve the unemployment rate in Canada to depriving the economy
of Billions of dollars corporations should have paid in taxes, companies have
found loopholes time and again to avoid paying taxes.  Paying tax to the economy is a simple duty
every individual must fulfill to help the economy of their country prosper,
ultimately improving the quality of life for themselves. If tax rates are
lowered, corporations will continue to take advantage of the system, unfairly
cheating their way out of paying their fair amount of tax. To avoid further
complications, corporate tax should be increased and implemented with stronger
government tax evasion policies, denying corporations the ability to pay less
tax than their fair share.

 

 

 

 

 

 

 

 

Works Cited

Barro,
Josh. “The truth about corporate tax cuts.” Business Insider,
Business Insider, 29 Apr. 2017,
www.businessinsider.com/the-truth-about-corporate-tax-cuts-2017-4.

Isfeld,
Gordon. “Canada’s economy sheds 31,200 jobs, pushing jobless rate to 6.9 per
cent.” Financial
Post, Financial Post , 5 Jan. 2018,
business.financialpost.com/news/economy/canadas-economy-lost-31200-jobs-in-july-the-biggest-one-month-drop-in-five-years.

Kilpatrick, Sean . “NDP seeks to fund spending plans with
corporate tax hike.” The Globe and Mail, The Globe and Mail , 25 Mar. 2017, www.theglobeandmail.com/news/politics/ndp-would-raise-corporate-taxes-to-pay-for-election-promises/article26382613/.

Oved, Marco Chown. “Tax loopholes cost Canada billions in
lost revenue.” Thestar.com, Toronto Star, 3
January 2018, www.thestar.com/news/world/2016/06/17/offshore-tax-avoidance-fixing-it-made-it-worse.html.

Raimondos,
Pascalis, and Sara L. McGaughey. “Are tax havens really all bad?” ABC News,
7 Dec. 2017,
www.abc.net.au/news/2017-12-07/tax-havens-may-actually-be-good-for-the-global-economy-qut/9216244.

Reich,
Robert. “Robert Reich: Why the rich and corporations should pay more
tax.” Newsweek,
27 Dec. 2017, www.newsweek.com/robert-reich-why-rich-and-corporations-should-pay-more-tax-670465.

Semuels,
Alana. “Would Cutting Corporate Tax Rates Really Grow the Economy?” The Atlantic,
Atlantic Media Company, 20 Dec. 2017, www.theatlantic.com/business/archive/2016/10/would-cutting-corporate-tax-rates-really-grow-the-economy/504845/.

“Canada’s
corporate tax cuts didn’t create jobs, they created corporate
cash hoarding.” PressProgress, 8 Jan. 2018,
pressprogress.ca/canada_corporate_tax_cuts_didnt_create_jobs_it_created_corporate_cash_hoarding/.