Corporate Income Taxes

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Corporate income taxes are:

Poll ended at 19 Apr 2011 19:40

borne by capital owners
2
9%
borne by consumers
7
32%
borne by workers
1
5%
shifted, and borne mostly by workers and consumers
10
45%
not shifted, and borne mostly by capital owners
2
9%
insufficiently analyzed
0
No votes
exercises in rhetoric
0
No votes
 
Total votes: 22

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parvus
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Corporate Income Taxes

Post by parvus »

Two quite contrary viewpoints. But it ultimately depends on who pays the CIT.

Five reasons to say no to more corporate tax cuts
Least effective job creation measure

According to the nation’s official number crunchers, if you want policy to encourage job creation, cutting corporate taxes is the weakest option (20 cents growth from every dollar of tax cut). Spending on infrastructure has the most impact ($1.50 on every dollar spent). Finance shows spending on income supports for the unemployed and low income Canadians has an equally big pop, and housing initiatives are almost as good ($1.40 for every dollar spent).

Little Impact on investments

Federal corporate tax rates have fallen from 28 per cent in 2000 to 18 per cent in 2010. Business investment (in non-residential structures and equipment) as a share of GDP was 12.4 per cent in 2000. It was also 12.4 per cent in 2009, and on track for the same in 2010.
<snip>

Pay more tax to cut taxes


Since Fall of 2010, the Harper team has been saying corporate tax cuts “pay for themselves” in closed-door meetings like these. But Budget 2009 figures show reducing the general corporate tax rate from 22.12 per cent in 2007 to 18 per cent by January, 2010, removed $6.7-billion annually from public coffers, right through the worse of the recession. Cutting the rate further this year, to 16.5 per cent meant another $2.8-billion in foregone revenues annually. The Harper team’s commitment to reducing the corporate tax rate to 15 per cent ultimately reduces the size of the public purse by $13.7-billion annually by 2012, according to Finance estimates, at which time the federal budgetary deficit will be between $21- and $26-billion (the range of Finance, PBO and IMF estimates). Financing this tax cut requires borrowing more money. The average Canadian taxpayer will pay interest on the borrowed money to provide a tax break for profitable corporations.

False economies

The Harper government viewed infrastructure spending as an extraordinary one-time stimulus measure.
<snip>

The question of working capital


Finance Minister Jim Flaherty says Canada’s tax rates on new business investment are the lowest in the G7. Erin Weir’s blistering riposte to Jack Mintz shows our corporate tax rates among the lowest in the developed world. Who are we competing with? It’s time for a reality check: Canada’s corporate sector is sitting on a growing pile of capital. In the recessions of the 1980s and 1990s the business sector was a net borrower of cash to cover their costs, as one might expect during lean times. In contrast, during this recession the business sector just kept generating bigger and bigger surpluses. In 2007 the net surplus of the sector was $43-billion. By 2008, it was $57-billion and by 2009, $59-billion. By third quarter 2010, $51-billion was generated in surplus. That’s the surplus in the annual flow. The accumulated stock of ready cash (currency, deposits and short term paper) in the non-financial corporate sector had grown to $489-billion by third quarter 2010. That’s a lot of money. When it finally gets put to work, we are likely to witness a wave of corporate consolidation. But mergers and acquisitions don’t necessarily create jobs in Canada. ...
Liberal corporate tax plan just election bumph
We stick it at 18 per cent, … The rate as of January 1, 2011 is 16.5 per cent. Going back to 18 per cent is an increase, not a pause. The scheduled decrease to 15 per cent in 2012 has been law for a couple of years now, and since major investment projects involve lead times measured in years, stopping now has almost the same effect as an increase. We cannot ‘stick’ at 18 per cent; we have long since moved past that point.

you save $6-billion, … The Liberals seem determined to repeat this number, so it’s important to remember that it means approximately nothing. As far as anyone can tell, its source is the Department of Finance’s October 2007 fiscal update. In Table 3.5, the projected tax relief of the reduction from 18 per cent to 15 per cent for the fiscal year 2012-13 is around $6-billion. There are several problems with this estimate:

• It is based on a 2007 projection for 2012-13. In 2007, corporate income tax (CIT) revenues per CIT rate percentage point were in the stratosphere and still rising; projections for the future were correspondingly optimistic. Using the same approach using more recent data, the PBO puts the sacrificed revenue on the order of $4.6-billion.

• It is based on static analysis, in which it is assumed that there are no behavioural responses to the policy change. As noted here, this is an extremely odd assumption to make in this context. The most important reason for cutting corporate income taxes is to induce those responses: higher productivity, wages and income. Higher incomes will produce higher tax revenues that will partially offset those lost to the CIT cuts.

• It ignores the potential for tax shifting. Multinational firms may choose to book revenues in Canada in order to take advantage of the lower rates, thus increasing the size of the corporate income tax base and therefore revenues. (To my mind, this is the weakest of the arguments in favour of cutting the CIT rate, since it amounts to playing a zero-sum game with other tax jurisdictions. But as long as other countries don’t respond, it’s still an important point to remember.)

My own rough guesstimate for the size of the effect of reducing the CIT rate from 18 per cent to 16.5 per cent on the federal budget balance is something on the order of $1-billion: ...
If you look at the G&M comments section for each article, there's a lot of moralism that doesn't even pretend to masquerade as analysis. While Gordon has addressed tax incidence elsewhere, I haven't found anything to that effect by Yalnizyan and Weir.

The arguments are largely theoretical, but they go like this. In a small open economy, the profit rate is in equilibrium to the world rate. If you increase corporate income taxes, then to attain the same profit rate labour income will be reduced, perhaps not in the short term, but the long term, since capital is relatively mobile and labour relatively immobile.

Surely it's an important question. If CIT is ultimately shifted onto workers, at least in large part, would not GST and PIT increases be more economically efficient?
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Re: Corporate Income Taxes

Post by marty123 »

parvus wrote: Liberal corporate tax plan just election bumph
There are several problems with this estimate:

• It ignores the potential for tax shifting. Multinational firms may choose to book revenues in Canada in order to take advantage of the lower rates, thus increasing the size of the corporate income tax base and therefore revenues. (To my mind, this is the weakest of the arguments in favour of cutting the CIT rate, since it amounts to playing a zero-sum game with other tax jurisdictions. But as long as other countries don’t respond, it’s still an important point to remember.)
I've seen tax shifting happen first hand, so a missing option is that corporate income taxes are borne by all taxpayers, not just corporations. What's not mentioned above is the fact that some jurisdictions will often create profit repatriation obstacles which give companies the incentive to invest profits where they are taxed.

As Jack Mintz wrote, you pay corporate income tax
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Re: Corporate Income Taxes

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I was going to post this in one of the income inequality thread, but it was contaminated by CAW ideas :lol: .
http://www.caw.ca/assets/pdf/protestingtoomuch.pdf

I have also been wondering where the employees share has been going because it's not showing up at the low end in real income growth. I suspect that the it's not in job growth or lower wage growth but in the high end salary growth of what Norbert called 'rock stars'. The top end of wages have dramatically outpaced the low end.

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Re: Corporate Income Taxes

Post by parvus »

The reason I didn't add "borne by all taxpayers" is because there's no way to qualify or break out what share is paid by each category: GST (for consumers, as prices rise), PIT (lower labour income, thanks to forgone wage increases) or PIT investment (corporate income flowed through as dividends).

I'm not sure a safe assumption is that the burden falls equally across all tax categories. That said, many incidence analyses do make that assumption. Since corporations are not "people" except in a legal sense, they simply attribute CIT to various income deciles on a pro rata basis.
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Re: Corporate Income Taxes

Post by parvus »

newguy wrote:I was going to post this in one of the income inequality thread, but it was contaminated by CAW ideas :lol: .
http://www.caw.ca/assets/pdf/protestingtoomuch.pdf

I have also been wondering where the employees share has been going because it's not showing up at the low end in real income growth. I suspect that the it's not in job growth or lower wage growth but in the high end salary growth of what Norbert called 'rock stars'. The top end of wages have dramatically outpaced the low end.

newguy
Indeed, as Armine Yalnizyan from CCPA points out, the increase in the top end share of income is not due to capital income, but to labour income. Ergo, more tax brackets.

The Rise of Canada's Richest 1%
Surprisingly, the incomes of the richest Canadians are increasingly reliant on their jobs, just like the rest of us. That’s a big change from the past.

In 1946, just after the end of the Second World War, their paycheques accounted for less than half their income (45.5%). Today over two-thirds of their incomes (67.6%) come from wages, with the balance mostly coming from professional fees, dividends, interest and investment income.

In fact, the richest 0.01% rely on their jobs for almost three-quarters of their income (73.5%), just like the average Canadian. The difference is their work is much more richly rewarded.

The richest 1% is increasingly like the average Canadian in another regard too: reliance on business income. In 1946, 24.3% of the incomes of the richest 1% came from running a business. That dropped to 3.1% in 2007 — the very same as for the average Canadian.
So the solution to income inequality is orthogonal to corporate income taxes. It lies directly in PIT, but that could be volatile, or, I think, in better public services. (And that doesn't include infrastructure, at least not in terms of more public spending on construction workers who, last I looked, were not noticeably unemployed. That's a buy-high, sell-low, trickle-down philosophy. :roll: )
Last edited by parvus on 29 Mar 2011 19:00, edited 2 times in total.
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Re: Corporate Income Taxes

Post by ghariton »

A primer from the U.S. Tax Foundation, circa 2001. From the abstract:
Unfortunately, most Americans have serious misperceptions about the actual burden of the corporate income tax, which produces over $200 billion annually in federal collections, or roughly $727 for each American. But economists have long understood that corporations simply collect taxes for the government, while people ultimately bear the cost.

<snip>

All Americans bear the burden of the corporate income tax. Our analysis of the economic incidence of the corporate income tax demonstrates that individuals— workers, consumers, and investors—bear the cost of the tax. Corporations are legal structures that provide the nexus for individuals acting in different capacities to accomplish their goals. These people actually shoulder the burden of paying the
corporate income tax.

The corporate income tax lowers standards of living. Economists have estimated that for every dollar collected by the federal government through the corporate income tax, an additional one and a half dollar’s worth of economic resources are consumed. This means a lower standard of living for all Americans. One study estimates that elimination of the corporate income tax would increase the average American’s lifetime standard of living by the equivalent of $10,000.
Bernard Salanie has a book entitled The Economics of Taxation, in which he writes extensively about incidence of corporate taxes. So for example, which of the three parties -- shareholders, employees or customers -- pay the biggest part of the tax? It turns out that, as a generalization, one should compare elasticity of demand with elasticity of supply for each group. In particular, if employees are relatively easy to replace, they get dinged the most. Similarly, if customers have no good substitutes for the firm's products, or are not willing to cut back on the quantities they buy, they bear a larger share of the corporate income tax.

Salanie also points out that if the firm has monopoly power for its products, it is possible that the price to consumers can go up by more than a corporate income tax increase.

Unfortunately, empirical estimates for Canada mostly date back to the 1970s, or so I was told when I asked Jack Mintz in 2006. Perhaps there have been some estimates since, but I don't know of any.

Concerning the CCPA study, it is vastly over-simplified and omits quite a few effects. I think Armine is a very nice and well-meaning lady. Unfortunately, she is obliged to operate on a shoe-string, and she is vastly overstretched.

I'm sure that the Liberals understand all this very well (I'm not so sure about the NDP and Bloc). I think that the Liberal campaign against the corporate tax cuts are populism at its worst. (I hasten to add that the Conservatives are doing their own pandering, although perhaps on a smaller scale.)

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Re: Corporate Income Taxes

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parvus wrote:The reason I didn't add "borne by all taxpayers" is because there's no way to qualify or break out what share is paid by each category: GST (for consumers, as prices rise), PIT (lower labour income, thanks to forgone wage increases) or PIT investment (corporate income flowed through as dividends).
If there is no way to break out what share is paid by each category, then why are we being asked to vote on which category bears the burden?
I'm not sure a safe assumption is that the burden falls equally across all tax categories.
If a safe assumption could be made, wouldn't this be a 1-choice survey? You tell me what safe assumption can be made about where the burden falls, and I'll pick that choice :wink:

P.S.: I'm not lobbying for the addition of a choice. It's too late in the game. I'm just explaining why I haven't voted.
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Re: Corporate Income Taxes

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ghariton wrote:Bernard Salanie has a book entitled The Economics of Taxation, in which he writes extensively about incidence of corporate taxes. So for example, which of the three parties -- shareholders, employees or customers -- pay the biggest part of the tax? It turns out that, as a generalization, one should compare elasticity of demand with elasticity of supply for each group. In particular, if employees are relatively easy to replace, they get dinged the most. Similarly, if customers have no good substitutes for the firm's products, or are not willing to cut back on the quantities they buy, they bear a larger share of the corporate income tax.
My beef with these studies is that they don't always dive into comparative studies and the dynamics of global tax shifting. It would be hard to do, because the comparative advantages change year after year. Attractive corporate tax rates have benefited the population of low-tax economies, and Ireland is a developed economy that successfully implemented the vision. The fact that Ireland otherwise screwed up its economy is irrelevant to the demonstrated success of (comparatively) low corporate tax rates, especially if it can be accompanied by diversified (but low-rate) tax receipts. Applying low corporate taxes in a global environment where Canadian companies are often a branch office of a USA head-office makes a lot of sense, especially at a time where the US government if forced to exclude the possibility of corporate tax breaks.
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Re: Corporate Income Taxes

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marty123 wrote:
parvus wrote:The reason I didn't add "borne by all taxpayers" is because there's no way to qualify or break out what share is paid by each category: GST (for consumers, as prices rise), PIT (lower labour income, thanks to forgone wage increases) or PIT investment (corporate income flowed through as dividends).
If there is no way to break out what share is paid by each category, then why are we being asked to vote on which category bears the burden?
Sorry, I was overhasty in that comment. Lizard brain at work. :oops:

I should have made a clear distinction between tax and income/consumption (or taxpayers and people). If the tax is shifted, it might not show up in another tax category. Instead, it might show up in lower consumption or lower aggregate labour income. If it is not shifted, it might show up as lower capital income (but that would depend on earnings growth and corporate level decisions as well as stock market sentiment). How we attribute capital income can also be devilish. You may have no capital income individually. But, if you are a worker, you are a member of the CPP/QPP, which has corporate investments and thus capital income.

Hence, taxpayers might face unexpectedly higher taxes, or lower consumption/income, which reduces the tax take. That's if statutory rates rise. If they fall, taxpayers may still face higher taxes, but that's because they are earning more. That's why I left the question as who bears the burden of the tax, rather than who pays it.

What complicates this, of course, is that statutory rates are not the same as effective rates, given the interaction of credits and deductions. More than that, effective rates are also dependent on the business cycle, at least on the CIT side. So we could say that CIT cuts will cost $1 billion or $6 billion. But we don't know. It depends on what corporate profits are in the future (they come in at about 10% of GDP, and tax-raising at 2%). It also depends on how it affects corporate investment, which Armine Yalnizyan suggests has been pretty constant at 11%-12% of GDP. It also depends on whether corporate investment actually has anything to do with job creation (since aggregate labour income is not the same thing as jobs).

This is probably still lizard brain territory. :oops:

And it gets more complicated. My own reading is that the studies are largely theoretical, and as George points out, consist in elasticities. The ones I've read have hypothesized elasticities. They talk about the theoretical options for shifting the cost of tax (not necessarily the tax itself). Reading these studies, I must admit, is like watching a dog chase its tail. Full of econometric pomp and circumstance, but not terribly enlightening.

Have I made myself sufficiently opaque?
I'm not sure a safe assumption is that the burden falls equally across all tax categories.
If a safe assumption could be made, wouldn't this be a 1-choice survey? You tell me what safe assumption can be made about where the burden falls, and I'll pick that choice :wink:

P.S.: I'm not lobbying for the addition of a choice. It's too late in the game. I'm just explaining why I haven't voted.
No problem. It was a bee in my bonnet.

The safe option is that someone pays for the CIT. Who pays it is hard to establish. One can also safely say it is not entirely capital owners (formally defined). How they pay is also hard to establish. It may be in higher taxes, or lower consumption or both. Insufficiently analyzed I think is the option you're looking for. :wink:
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Re: Corporate Income Taxes

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marty123 wrote:Applying low corporate taxes in a global environment where Canadian companies are often a branch office of a USA head-office makes a lot of sense, especially at a time where the US government if forced to exclude the possibility of corporate tax breaks.
Look at the pressure on Ireland to raise taxes and ask yourself if we'd be allowed to cut corporate taxes even more.

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Re: Corporate Income Taxes

Post by parvus »

Interesting question.

In Canada, the federal parties are focused on a corporate tax rate of 15%. That looks close to Ireland's 12.5% rate. Except we have to consider the provincial take, which raises the combined rate to more than 25%. We haven't quite hit the low-tax leagues of Ireland yet.

Second, what is the optimal corporate tax rate. I don't know, but I've seen studies suggesting 30% to 35%. So Canada may be low-balling it. Then again, those studies are criticized for being Lafferesque: i.e., that rate reductions lead to more revenues.

A third consideration, which unfortunately occurred to me late, is that corporate income tax rates should track personal income taxe rates, so that at the top end there's no incentive for tax arbitrage. Clearly the potential is there, given a marginal PIT rate of 46% and a CIT of 25%. And the outlook worsens with small business tax preferences. (But small businesses create jobs, right?)
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Re: Corporate Income Taxes

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ghariton wrote:Unfortunately, empirical estimates for Canada mostly date back to the 1970s, or so I was told when I asked Jack Mintz in 2006. Perhaps there have been some estimates since, but I don't know of any.
I find that Mintz, one of the few tax scholars in Canada, is unfairly pilloried by the left. Fine to disagree with conclusions from the data, fine to disagree with the completeness of the data. But to suggest an agenda is not Marquis of Queensbury. Torture the data yourself, or come up with more complete data. Let's have a debate.
Concerning the CCPA study, it is vastly over-simplified and omits quite a few effects. I think Armine is a very nice and well-meaning lady. Unfortunately, she is obliged to operate on a shoe-string, and she is vastly overstretched.
It's just StatsCan data-mining. Not that there's anything wrong with that. StatsCan is an invaluable resource. So are all kinds of general equilibrium analyses. In terms of policy, however, these remain descriptive data, possibly predictive, but certainly not normative.

As Armine herself said, the solution for income inequality is for well-paid folks to take less, which inevitably they will have to do as boomers retire and labour shortages augment. Greater corporate profits, greater retained earnings, evidently they have nothing to do with income inequality, by this account. Instead, it's high levels of compensation.

So perhaps the solution is to tax the richhigh-income earners. Given that the top-decile starts at $64,000, lots of people will be surprised to learn they are considered to be contributors to income inequality (or at least the gainers.) Still, it might work. What will the proceeds be used for? More childcare spaces, or higher incomes for low-paid childcare workers? More nurses, or better-paid nurses? More university spaces, or more star professors?

These sorts of issues seem to have fallen to the side, with populist focus on statutory tax rates and headlines about income inequality that generate dismay for many, and outrage for some, but no clear solutions.
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Re: Corporate Income Taxes

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parvus wrote:Second, what is the optimal corporate tax rate.
I'd argue that the optimal tax rate is zero, or close to it.

From the point of view of efficiency, the CIT lowers the rate of return on worthwhile corporate projects, and some do not get done even though they would benefit society otherwise. Plus we have a very complicated system of tax expenditures, designed mostly for political purposes, to favour this constituency or that one. It induces major misallocation of resources.

For example, why are there special breaks for CPCCs? I personally enjoy the breaks being there, but I don't see how society at large is one whit better off for their existence.

From the point of view of equity, the corporate tax also makes no sense. It is equally passed on to some members of society who are well off and some who are disadvantaged and some in the middle. If we really want to operate a progressive tax system (which perhaps should be debated), then surely we should be looking at the final incidence.

The problem is that most people think that the shareholders pay, if they actually think past the image of the corporation as an anthropomorphic ogre. But of course, as this thread says, workers and consumers also pay a part -- and in some cases, potentially all of it. Even if shareholders were to bear all of it, not all shareholders have the same income level So the corporate income tax still has potentially regressive elements.

I know of only two legitimate arguments in favour of the corporate income tax. One is that it acts as a withholding tax, and so reduces tax evasion. The other is that it is a way of taxing foreign shareholders, who do not pay personal income tax in Canada and so would otherwise get off scot free. But it is not at all clear to me why foreigners, who enjoy none of the benefits of the Canadian state, should pay toward its operation.
A third consideration, which unfortunately occurred to me late, is that corporate income tax rates should track personal income taxe rates, so that at the top end there's no incentive for tax arbitrage.
Well, integration of corporate and personal income tax is supposed to take care of that. But integration only works for small businesses, and even there it is a very rough tool. I guess complete integration would be too expensive in terms of deductions.
Greater corporate profits, greater retained earnings, evidently they have nothing to do with income inequality, by this account. Instead, it's high levels of compensation.
Yes. That's the story coming out of the U.S. too.
So perhaps the solution is to tax the rich high-income earners.
:lol:

Reminds me of the story of Alexa McDonough addressing an audience of auto-workers and advocating taxing the rich. That went over very well, until someone asked her who she meant by "rich"? Oh, she replied, people making more than $60,000. A cold silence descended over the room.

The concern is that, if we tax the rich more, they will divert a significant amount of their resources from productive uses to designing and executing tax avoidance schemes. If one's affairs are arranged to maximize after-tax income, and the tax code is the least bit complicated, there will be arrangements which are very wasteful in terms of real resources, but wonderful in terms of tax efficiency.

The Laffer curve does have more than a grain of truth to it.
What will the proceeds be used for? More childcare spaces, or higher incomes for low-paid childcare workers? More nurses, or better-paid nurses? More university spaces, or more star professors?
I guess it would be out of the question to cut taxes for the working poor? For lower middle class households?
These sorts of issues seem to have fallen to the side, with populist focus on statutory tax rates and headlines about income inequality that generate dismay for many, and outrage for some, but no clear solutions.
Yes. It's scary to think of how ill-informed the average voter is. Perhaps campaigns to get people to vote, who otherwise wouldn't vote, are ill-conceived. Do we really need more "noise voters"?

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Re: Corporate Income Taxes

Post by parvus »

ghariton wrote:I guess it would be out of the question to cut taxes for the working poor? For lower middle class households?
Two issues. The working poor probably aren't paying much in the way of income taxes. But yes, we could do more, I think. We, the rich, who make $60K+. (Sounds like the title of an Ayn Rand novel tract).

The first is refundable tax credits, but as often pointed out, they require a taxable income. So let's do a negative income tax.

The second, of course, is universally accessible public services (not that everyone should be obliged to use them): to make up for externalities, lack of market income &c.

After five or so years writing on this forum, I'm embarrassed to say that the best I can come up with is that. Not that we, as a society, have made any especial advances either way.
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Re: Corporate Income Taxes

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parvus wrote:Given that the top-decile starts at $64,000, lots of people will be surprised to learn they are considered to be contributors to income inequality (or at least the gainers.)
Reference?

This 2007 review uses quitiles http://www.statcan.gc.ca/pub/75-202-x/7 ... 00-eng.pdf and $64k seems rather low for top decile....
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Re: Corporate Income Taxes

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parvus wrote:So let's do a negative income tax.
Yes. :thumbsup: :thumbsup: Advocated, among many others, by Milton Friedman and Barry Goldwater.

I knew we would convert you some day. :lol:

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Re: Corporate Income Taxes

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parvus wrote:The working poor probably aren't paying much in the way of income taxes.
Only up to 70% MTR for a single earner in a family of 4, supposedly in the first tax bracket.
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Re: Corporate Income Taxes

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adrian2 wrote:
parvus wrote:The working poor probably aren't paying much in the way of income taxes.
Only up to 70% MTR for a single earner in a family of 4, supposedly in the first tax bracket.
I usually agree with you on this point, but in this thread you should point out that it's really benefit clawbacks. It's still crazy because it acts just like a marginal rate on behaviour.

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Re: Corporate Income Taxes

Post by adrian2 »

newguy wrote:I usually agree with you on this point, but in this thread you should point out that it's really benefit clawbacks. It's still crazy because it acts just like a marginal rate on behaviour.
In the context of this discussion, one can call a benefit a negative income tax, and not much would change.
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Re: Corporate Income Taxes

Post by marty123 »

adrian2 wrote:In the context of this discussion, one can call a benefit a negative income tax, and not much would change.
The other thing to keep in mind, is that the 70% MTR discovery dates from the days that the 2nd federal income tax bracket was at $36,000. The new all-in MTR may now be lower due to bracket increases. Some of these benefits brackets increase at a different pace, and the Ontario health tax is still bracketed at $36K.
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Re: Corporate Income Taxes

Post by newguy »

adrian2 wrote:
newguy wrote:I usually agree with you on this point, but in this thread you should point out that it's really benefit clawbacks. It's still crazy because it acts just like a marginal rate on behaviour.
In the context of this discussion, one can call a benefit a negative income tax, and not much would change.
True, and I think that's the way the accounting should be done. But you can't use high marginal rates = high taxes as an argument. The real problem is the marginal rate, not the amount of negative income tax they get.

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Re: Corporate Income Taxes

Post by newguy »

marty123 wrote:
adrian2 wrote:In the context of this discussion, one can call a benefit a negative income tax, and not much would change.
The other thing to keep in mind, is that the 70% MTR discovery dates from the days that the 2nd federal income tax bracket was at $36,000. The new all-in MTR may now be lower due to bracket increases. Some of these benefits brackets increase at a different pace, and the Ontario health tax is still bracketed at $36K.
In Quebec this year I had a 65% marginal rate and it will be higher when I get all the extra RESP money this year.

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Re: Corporate Income Taxes

Post by adrian2 »

marty123 wrote:The other thing to keep in mind, is that the 70% MTR discovery dates from the days that the 2nd federal income tax bracket was at $36,000. The new all-in MTR may now be lower due to bracket increases. Some of these benefits brackets increase at a different pace, and the Ontario health tax is still bracketed at $36K.
True. Eyeballing the new rates, the 70% MTR may be around 60% today, still about triple the nominal 20% lowest MTR which supposedly applies.
newguy wrote:But you can't use high marginal rates = high taxes as an argument.
Correct. But for an ordinary person, it has a similar end result.
newguy wrote:In Quebec this year I had a 65% marginal rate and it will be higher when I get all the extra RESP money this year.
The 70% example was not a contrived example, it was a real case of a person I've helped to prepare the taxes for. Now we have another example of real life 65% MTR.
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Re: Corporate Income Taxes

Post by parvus »

NormR wrote:
parvus wrote:Given that the top-decile starts at $64,000, lots of people will be surprised to learn they are considered to be contributors to income inequality (or at least the gainers.)
Reference?
This 2007 review uses quintiles http://www.statcan.gc.ca/pub/75-202-x/7 ... 00-eng.pdf and $64k seems rather low for top decile....
Sorry Norm, I was halfway through typing a response last night, and the screen went blue. :shock: So I thought I would call it a night, rather than wrestle a defiant computer.

First, let's make a distinction between pre and post-tax income. After-tax analysis is going to shift things around in the quintile distribution of income, compared to a raw labour income perspective. Tax-transfers will lower the quintile boundaries, thus disguising labour income differentials. (Not that that's a bad thing: but statistical manipulations aren't the same as socialism, even if they hint at the efficacy of the welfare state. :wink: )

Armine uses the decile figure here:
Who falls into the richest 10%? If you made more than $63,350 in 2007, you made more than 90% of Canadian taxfilers. Nearly 2.5 million Canadians fell into this category. The richest 10% of Canadian tax-filers accounted for 41% of the nation’s $970 billion in total pre-tax income. The richest 10% hasn’t held such a large share of total income at any time since the Second World War, which is as far back as the historical tax data go for this group.
I believe it's derived from this study, which uses quantiles for the middling types and deciles for both the low and high end of income. Or it could be stuff updated from studies like this, wherein only the top and bottom deciles are considered worth breaking out. I wrote about this (alas with no new insight now to offer) on FWF back in '07

(I'm a little disappointed to see myself saying the same things, same things, same things ... :shock: :lol: )
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Re: Corporate Income Taxes

Post by parvus »

ghariton wrote:
parvus wrote:So let's do a negative income tax.
Yes. :thumbsup: :thumbsup: Advocated, among many others, by Milton Friedman and Barry Goldwater.

I knew we would convert you some day. :lol:
You should have heard the lunch discussion with Norm today, with him taking up the left-wing perspective. :wink:
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