Canada can’t afford corporate tax bonanza



Canada can’t afford corporate tax bonanza

By: Ken Georgetti, Toronto Star

Big businesses in Canada will be popping the champagne corks to celebrate Corporate Tax Freedom Day on Feb. 1. A new research study by the Canadian Labour Congress shows that by that date, because of corporate tax breaks, companies will have finished paying their share of taxes to all levels of government.

Corporate income taxes in 2010 amounted to only 8.8 per cent of all government revenues. That represents a downward trend that has been occurring for years.

Successive federal governments have slashed the federal corporate tax rate from 28 per cent in 2000 to 15 per cent in 2012. Giveaways since 2006 will cost the federal government lost revenues of $13 billion this year, according to the Department of Finance.

The Conservative government’s latest round of corporate tax giveaways on Jan. 1 of this year also means Corporate Tax Freedom Day will arrive on an even earlier date in years to come.

In return for these tax breaks, companies were supposed to be investing and creating jobs. But that is not happening. The job market ground to a halt in the last three months of 2011. Statistics Canada reports that in those months we lost 63,000 full-time jobs and the national unemployment rate rose from 7.1 per cent to 7.5 per cent. There were 1.4 million unemployed Canadians in December 2011, compared to 1.1 million in October 2008, just prior to the recession. We have lost more than 500,000 manufacturing jobs since 2003.

Rather than investing to create jobs, Canada’s largest non-financial corporations are hoarding cash and paying out fat dividends to their shareholders. We have found that the top 10 corporate hoarders have collectively accumulated $30.7 billion in extra short and long-term cash assets between the years 2000 and 2010.

The leading cash hoarder is Potash Corp. of Saskatchewan, which accumulated more than $5.13 billion in assets over this period. Other cash hoarders of note include: George Weston Ltd., Barrick Gold Corp., Research In Motion, Kinross Gold Corp. and Magna International Inc.

Not coincidentally, the CEOs from these top 10 cash hoarding companies are among the most highly paid in the country.

Companies are also using the increased after-tax profits that result from corporate tax giveaways to boost dividends paid out to their shareholders. Dividends as a percentage of after-tax profits have risen sharply from 30 per cent in the year 2000 to over 50 per cent in recent years.

Ottawa is borrowing money and adding to our country’s debt to finance this largesse to the corporate sector. To pay for corporate tax breaks that aren’t delivering the promised jobs, Finance Minister Jim Flaherty appears poised to use his upcoming budget to make massive cuts to public services, including food safety and meat inspection, that are essential to Canadians.

Making deep cuts at this time could snuff out our fragile economic recovery. Ottawa should be investing these billions of dollars in Canadian families rather than giving taxpayers’ money to corporations that don’t need it and aren’t investing to create jobs.

We are calling on the federal government to use its 2012-13 budget to invest in job-creating infrastructure projects and badly needed public services. According to the Department of Finance’s own estimates, $1 billion in infrastructure investment creates more than five times as many jobs as the same amount spent on corporate tax cuts.

These government investments can be financed by restoring the federal corporate income tax rate to 19.5 per cent, which would still be less than it was when the Conservative government took office in 2006, and less than the U.S. corporate tax rate.

Restoring the corporate tax rate to 19.5 per cent would generate $10 billion this year in added tax revenue. That makes far more sense than the continued folly of tax giveaways to big business, which is not keeping up its end of the bargain to invest and create jobs.

Don't scapegoat corporate Canada

By: Tasha Kheiriddin, National Post

It's not a good time to be rich in North America. Millionaires and corporations have become the punching bags of both the left and the right, with Occupy protestors, Barack Obama, Warren Buffett and even Republican presidential contenders all taking their jabs.

You can now add to that list the Canadian Labour Congress (CLC) - a union umbrella group - which has just released a study purporting to calculate "Corporate Tax Freedom Day."

The CLC report parodies the Fraser Institute's annual "Tax Freedom Day study," which calculates the day of the year on which Canadian taxpayers start working for themselves, having discharged their fiscal burden to the government. (In 2011, it came on June 6.) The CLC pegs the corporate-tax date at February 1, earlier than in previous years due to corporate tax reductions by successive Liberal and Conservative governments over the past decade.

What were companies doing with all this cash? According to the CLC: paying bigger dividends, or, worse yet, hoarding it under some metaphorical corporate mattress. "Dividends as a percentage of after-tax profits have risen from 30% in 2000 to over 50% in recent years." Meanwhile, "according to Statistics Canada, total corporate reserves of private, nonfinancial corporations grew from $157-billion in the second quarter of 2001, to $477-billion in the second quarter of 2011."

The CLC notes that 1.4million Canadians were looking for work in 2011, up from 1.1-million in 2008, and cites this as evidence that Canadian companies were using tax breaks to line the pockets of shareholders and CEOs instead of creating jobs.

Time for a little reality check. First, using those labour statistics is disingenuous, as they span a period that corresponds with a worldwide economic downturn. Why would companies be hiring more workers, to produce more goods and services, when the market for them has slowed and the demand isn't there? It is more honest to look at the entire decade: From 2001 to 2008, the national unemployment rate fell from just under 8% to just over 6%, during the same period that the federal general corporate tax rate fell steeply, from 28% to 19.5%. After that, the rate declined by only three percentage points, to 16.5% - and unemployment has now started declining as well again since 2010.

Second, let's address the issue of dividends. Dividends constitute income, and are taxed in the hands of recipients, in some cases at rates of over 30%, depending on the taxpayer's income level, provincial tax rate and credits. That's higher than what corporations would pay on the same amount. The payment of regular dividends also makes a company's stock more attractive, making it easier to raise capital and keep the company competitive - which is especially crucial in a credit crisis, such as the global economy recently experienced.

Third, the CLC completely ignores the not-for-profit good that those companies, CEOs and shareholders do with their money. Let's look at some of the top 10 "hoarders" demonized by the CLC. Near the top of the list is the Weston Group of companies: The family's private trust, The W. Garfield Weston Foundation, has disbursed over $200-million in donations in the past 10 years, while company programs such as the Wonder+cares initiative for children's health encourage employees to give as well. RIM makes the "hoarders" list: Its former CEO, Peter Lazaridis, used his own money to establish the soon-to-be-completed Institute for Quantum Computing at the University of Waterloo and the Perimeter Institute for Theoretical Physics, while former CEO Jim Balsillie built the Centre for International Governance Innovation and the Balsillie School of International Affairs. As for Barrick Gold, its Chairman and founder Peter Munk's charitable foundation has disbursed over $100-million since 1992; he has also given $37-million to establish the Peter Munk Cardiac Centre, and donated $50-million to the University of Toronto to set up the Munk School of Public Affairs. And so on, and so on.

If the CLC had its way, corporate taxes would be higher, and many of those dollars would be redirected to government coffers, where they would allegedly do more good. This is the same tone taken by Barack Obama in his State of the Union address this week: Government knows better than the individual how to spend money, so let's take more of it under the guise of "fairness." The reality is that tax cuts, both corporate and personal, on low and high income, have benefitted everyone. Prescriptions for "eating the rich" might make good sound bites for politicians and labour unions, but they won't make us better off.

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