Hooray for Corporate Tax Cuts

My latest Calgary Herald column looks at recent evidence vindicating the corporate tax cuts at the federal and provincial levels:

From Wall Street shenanigans to the more recent accounts of mistakes and  shortcomings at XL Foods in Brooks, those looking to demonize corporations have  no shortage of ammunition at their disposal.
As such, calls for higher corporate taxes seem to resonate with a great many  Canadians.
In our recent provincial election, the Liberals and New Democrats proposed  raising Alberta’s corporate income tax rate.
In last year’s federal election, both the federal Liberals and New Democrats  campaigned against the Conservatives’ planned corporate tax reductions.
We’re even to the point, it seems, of anthropomorphizing these entities with  constant referrals to “rich” and “wealthy” corporations, as though these  corporations are living in large houses and driving fancy cars.
Certainly “rich” and “wealthy” people exist, but such individuals pay  personal income taxes, not corporate income taxes. If you wish the “rich” and “wealthy” to pay more, your focus should be on the former, not the latter.
In bemoaning Alberta’s tax structure, advocacy groups claim that the  reduction in Alberta’s rate from 15.5 per cent in 2001 to 10 per cent today is  costing us revenue. However, a look at the numbers suggests that the reality is much more  complicated than these advocates of higher rates would have us believe.
For example, for the fiscal year 2001-02, Alberta’s corporate income tax  revenues were $2.2 billion. But the lower rate did not lead to reductions in  corporate tax revenues; quite the opposite, in fact.
By 2005-06, corporate income tax revenues were $2.9 billion. That number rose  to $3.6 billion the following year, and was up to $4.75 billion by 2009-10.
We’ve seen much the same at the federal level. Beginning in 2001, the federal  Liberals initiated a series of reductions in Canada’s corporate tax rates. The  rate fell from 28 per cent in 2001 to 21 per cent in 2004. The rate fell again  under the Conservatives, going to 19.5 per cent in 2008 to 15 per cent in  2012.
Corporate tax revenues followed a different trajectory. Revenues increased  sharply in 2002, levelled off from 2003 to 2005, and then rose again before  dropping off in the 2008 recession.
New data released this week, however, show another increase in corporate  income revenues despite the much lower rate. In 2010-11, Ottawa took in $30  billion from corporate taxes — last year, that number was up to $31.7  billion.
So instead of saying revenue was up “despite” the lower rate, could you argue  that the revenue was up “because” of the lower rate?
It would be simplistic to claim that revenues will automatically rise with a  reduction in the corporate tax rate, but it’s even more simplistic — and  incorrect — to argue that revenues will automatically increase with higher  corporate tax rates.
Virtually no one is arguing the former point, but there is no shortage of  those arguing the latter.
Late last month, the U of C’s School of Public Policy released the 2012 annual global tax competitiveness ranking, which notes how successful Canada has  been in reducing its corporate tax rates and broadening the tax base. As a  result, we are now the most tax-competitive jurisdiction in the G7.
As for the effect on government revenues, authors Jack Mintz and Duanjie Chen  shed some light on the behaviour of corporations, which can help us understand  the relationship between rates and revenues.
For example, large, multinational corporations have shifted profits to Canada  to take advantage of the lower rates. To call for higher tax rates then is to  ignore “the impact of rate changes on the incentive for corporations to shift  profits into and out of jurisdictions.”
Meanwhile, a study released last year (PDF) by Edmonton economists Bev Dahlby and  Ergete Ferede found that raising corporate taxes is the most harmful form of tax  increase.
That study also contains two other important points: on a per-capita basis,  Alberta has the largest corporate tax base; and that three provinces — Ontario,  Nova Scotia and Newfoundland-Labrador — likely would see an increase in revenues  resulting from cutting corporate tax rates.
We need to get past our tendency to vilify corporations. We need to ignore  the simplistic calls for higher corporate tax rates. Canada’s corporate tax  reductions have been a major success story.