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

Re: Corporate Income Taxes

Postby newguy » 29 Apr 2011 19:16

jesse wrote:
Why not increasing productivity? What's so important about jobs?

The issue is that if unemployment remains high for an extended period, unemployed citizens become more and more a liability for governments as people are "left behind", not to mention the lost income/consumption tax revenue which -- let's face it -- is part of the end goal to raise tax revenue to balance the budget. The challenge is, in my view, ensuring the jobs that are created are productive. It is hard to argue an economy can grow at full potential with a chronically elevated unemployment rate.


The economy grew just fine when less than 60% of the people were employed. Maybe the problem is taxes are so high that a family needs 2 incomes nowadays.
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Re: Corporate Income Taxes

Postby newguy » 29 Apr 2011 19:21

Dennis wrote:
What's so important about jobs?


Nothing, if you have one :roll:

I don't have one and I don't want one. I'd rather spend time with my family rather than earn money for the sole purpose of paying taxes or being part of the consumer culture.

In regards to productivity, I've worked on a farm and in construction. I've grown enough food for my family for about 100 years and built at least 2 complete buildings. I haven't grown any cotton but I think I've made enough food and shelter to last a lifetime. I have a girlfriend and no longer have to pay for 'services' so why is it we all still have to work 40 hours a week? The only thing I've left out is government, so they must be sucking up all the productivity.

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Re: Corporate Income Taxes

Postby jesse » 29 Apr 2011 19:28

think it's best they keep the money until they no longer have investment ideas

How does that make sense? Them "keeping" the money means they have no investment ideas, or are simply retaining the cash because any investment ideas they have aren't profitable. If a company continues to sit on its cash, this doesn't help government budget-balancing efforts, which is much of the reason the Conservatives are proposing lowering tax rates. If they invest in machinery or out-of-country, same problem. A lower CIT with further investments in jobless growth has no multiplier effect.

And it's unemployment, not employment that's important. Unemployment shows labour market distress, and high UE means there is slack in the economy -- people wanting to be productive cannot be productive, for whatever reason, and it's not always laziness or incompetence, which is around in low-UE times too.
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Re: Corporate Income Taxes

Postby newguy » 29 Apr 2011 19:37

jesse wrote:
think it's best they keep the money until they no longer have investment ideas

How does that make sense? Them "keeping" the money means they have no investment ideas
Poor phrasing on my part, I should've said 'let the company put it to use instead of giving it to the government'. I don't know why they would just sit on cash indefinitely.

As for all the jobs stuff, I disagree. I find it ludicrous that we increase productivity every year yet we need to work more hours to pay for our lifestyles. All the 'housewives' were unemployed or underemployed in the 50's and 60's and the world got along just fine.

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Re: Corporate Income Taxes

Postby Springbok » 29 Apr 2011 19:46

newguy wrote:
The economy grew just fine when less than 60% of the people were employed. Maybe the problem is taxes are so high that a family needs 2 incomes nowadays.

newguy


The problem could be that if corporate taxes are cut when a country is in recession, the corporations don't see a market for their products or services, so just sit on their new found revenue in hope that better times will prevail.

The cuts therefore do nothing to generate new jobs.

The revenue could be used to improve productivity, but that could mean less jobs. But stats appear to show that many companies are just hoarding cash and not improving productivity nor creating new jobs.

BTW, for those who did not hear it, there was an interesting exchange between Jack Mintz and Michael McCracken. Cover various aspects of NDP economics including corporate taxes.

Both smart guys with extensive economic policy experience. But they have opposing views. How are those of who are less educated on these matters supposed to know which theory is correct when even the experts can't agree?

http://www.cbc.ca/video/news/audioplaye ... 1902753199 (starts about 4 min in)
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Re: Corporate Income Taxes

Postby jesse » 29 Apr 2011 19:48

I find it ludicrous that we increase productivity every year

I see two views on this: one is a lifestyle choice, which France adopted for a time with a 4 day workweek and many Canadians do through part-time work by choice and stay-at-home partners. The other issue is having a government with a large deficit that it needs to close. It needs more people working to get more revenue. It has nothing to do with lifestyle and everything to do with them increasing their revenue to fully fund their expenses.

It's cynical, but the government is running a business of its own and right now their revenue is down and the shareholders are asking annoying questions. They have to figure out a way of raising the revenue and/or cutting the expenses to improve "shareholder value" in the long-run. Their challenge is that their revenue and expenses are linked so it's a closed system, exports minus imports aside.
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Re: Corporate Income Taxes

Postby Dennis » 29 Apr 2011 19:49

The government should be looking at what is best for it's citizens, long term and short term. Nobody gave it a mandate to do otherwise and it is a fallacy that "whats good for General Bullmoose, is good for the USA" is always correct.
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Re: Corporate Income Taxes

Postby newguy » 29 Apr 2011 20:18

Springbok wrote:The problem could be that if corporate taxes are cut when a country is in recession, the corporations don't see a market for their products or services, so just sit on their new found revenue in hope that better times will prevail.
To do otherwise would be a bad investment. What you are proposing is a bunch of empty cities in China. I'm sorry, but I consider most civil servants and politicians to be borderline retarded, I certainly don't want them making investment decisions.

The cuts therefore do nothing to generate new jobs.

Agreed, nor should they. The government isn't there to make sure the private sector creates jobs, that's what the civil service is for. Whatever their purpose is, it should involve taking taxes in the least harmful way possible.

The revenue could be used to improve productivity, but that could mean less jobs. But stats appear to show that many companies are just hoarding cash and not improving productivity nor creating new jobs.
Pass a law banning steam shovels(or their modern equivalent), every one in Canada will pick up a shovel and move to the oil sands. Job problem solved. This isn't a silly suggestion of mine, but the exact same argument as protectionism or jobs vs productivity.

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Re: Corporate Income Taxes

Postby newguy » 29 Apr 2011 20:21

jesse wrote:The other issue is having a government with a large deficit that it needs to close. It needs more people working to get more revenue. It has nothing to do with lifestyle and everything to do with them increasing their revenue to fully fund their expenses.

It's cynical, but the government is running a business of its own and right now their revenue is down and the shareholders are asking annoying questions. They have to figure out a way of raising the revenue and/or cutting the expenses to improve "shareholder value" in the long-run. Their challenge is that their revenue and expenses are linked so it's a closed system, exports minus imports aside.

At least you acknowledge the expense side. Like I said in the previous post, the revenue should be raised in the least harmful way possible. I think it needs to be cut by about 90% so we're probably on opposite idealogical sides.

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Re: Corporate Income Taxes

Postby Shine » 29 Apr 2011 23:16

newguy wrote:
I have a girlfriend and no longer have to pay for 'services' so why is it we all still have to work 40 hours a week?


This is indeed a curious statement. :)
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Re: Corporate Income Taxes

Postby newguy » 29 Apr 2011 23:18

Shine wrote:
newguy wrote:
I have a girlfriend and no longer have to pay for 'services' so why is it we all still have to work 40 hours a week?


This is indeed a curious statement. :)

Well, I covered the basics of food clothing and shelter, but ghariton would've pointed out that the economy is moving towards more 'services'. I was just showing I had all bases covered.

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Re: Corporate Income Taxes

Postby Bylo Selhi » 30 Apr 2011 08:18

Now "starve the beast" takes on a whole new meaning. What's the point of lowering CIT when they're just going to squander it? ;)

Canadian firms' poor record of investment stretches back 40 years: report
The Conference Board has issued a stinging indictment on how little Canadian firms invest in making themselves more productive. Under-investment in new equipment and machinery has been a problem stretching back at least 40 years, and Canadians have paid a heavy price, the think-tank says.

The Conference Board is not the first to point out that Canada lags behind many advanced economies in terms of productivity improvements. But the new analysis released early Friday shows how long the practice has been going on and finds an almost perfect correlation between low investment and low productivity...

The Conference Board report comes at a time when the issue of corporate taxes is a key demarcation point among the parties in the election campaign, with the Conservatives favouring lower taxes to boost investment and the opposition parties calling for the rate to be hiked... As well, governments eliminated the capital tax, and introduced investment-inducing benefits, such as tax write-offs and the elimination of import duties on machinery and equipment.

The perceived lack of payoff for the many carrots thrown at firms has frustrated policy makers. Finance Minister Jim Flaherty has on several occasions urged firms to play their part...
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Re: Corporate Income Taxes

Postby newguy » 30 Apr 2011 10:28

Bylo Selhi wrote: ;)

What I don't get is why people want more jobs instead of more productivity. If you told someone they could a) work more or b) work for more, they would choose b. But all the talk is about how many jobs we create and not how much those jobs pay, either in money or widgets.

I'm also not really clear on investment = savings* for our economy. If we lower CIT and free up capital for investment but at the same time the population has the lowest savings rate ever, what does that do to investment? Maybe it's not corporate taxes responsible for low productivity, but the desire to spend on junk instead of saving.

newguy

*not even sure this is true or how it works, but I've read it often enough.
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Re: Corporate Income Taxes

Postby Dennis » 30 Apr 2011 11:37

newguy.....you seem to think that all those unemployed people are there because they want to be :?:
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Re: Corporate Income Taxes

Postby Shakespeare » 30 Apr 2011 11:39

Some people won't take lower-tier jobs.

(IMO that is a forewarning of a society's eventual collapse as hungrier societies will overtake it.)
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Re: Corporate Income Taxes

Postby ghariton » 30 Apr 2011 12:35

Bylo Selhi wrote:
The Conference Board has issued a stinging indictment on how little Canadian firms invest in making themselves more productive.

From the press release you linked to:

Those circumstances have come full circle, he adds, and he believes businesses will alter their behaviour as well.

"We've seen some evidence of a change, but it's early days. You change a tax policy and it's going to take a while before you see any consequence in terms of investment behaviour."


That's very important, in my opinion. Some popular recent analyses look at corporate behaviour since 2008. Since not all of the data are available for 2010 yet, that's a two-year period. WADR, we can't tell anything from that.

The mystery of low Canadian productivity has been examined by economists for almost twenty years now, and there is still no good answer. Here is the latest high-level conventional wisdom. It's put together by a large team of CEOs and such, and so can be expected to have a lot of motherhood statements. However, here is one of the many factors that they identify:

Many studies over the years have pointed to a relatively high rate of business taxation in Canada, particularly as it affects the after-tax cost of M&E investment. This reduced the incentive for firms to accumulate M&E and, because of the strong linkages among M&E, R&D and innovation generally, would explain some part of Canada’s weak productivity performance. According to estimates by the C.D. Howe Institute, Canada’s marginal effective tax rate (METR) for medium and large companies was the highest in the OECD in 2005 and 2006, though the comparable rate in the United States was only slightly lower. The federal government has meanwhile been steadily reducing corporate tax rates of various kinds, and in Budget 2009 committed to continue with measures projected to give Canada the G7’s lowest overall tax rate on new investment by 2010.


I have seen studies that suggest that productivity growth in Canada is particularly low in small companies, and that since Canada has many more small companies than the U.S., it is to be expected that our over all productivity growth will be lower. Other studies suggest that foreign subsidiaries do better than all-Canadian companies -- but that may be because the foreign subsidiaries have access to their parents' technologies and processes, etc.

Given these two hypotheses, perhaps we should be more cautious in giving special tax and other incentives to small Canadian companies in preference to other companies here.

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Re: Corporate Income Taxes

Postby newguy » 30 Apr 2011 14:14

Dennis wrote:newguy.....you seem to think that all those unemployed people are there because they want to be :?:

Well, like shakes said "some people won't take the bad jobs". There's also the fact that some workers aren't even worth minimum wage. That being said, I loved being a manager(retail food) during recessions because you could hire very good people and work them hard, so there were still people back then who would do hard jobs.

But that's not my point, my point is the government shouldn't be trying to create jobs, they should, at the very least, be not implementing policies against jobs or productivity increases. In the US (and elsewhere) they seem to think that negative real rates will create enough demand that there will be more jobs, even though that's what got us into this mess in the first place.

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Re: Corporate Income Taxes

Postby jesse » 01 May 2011 01:57

I think [tax revenue] needs to be cut by about 90% so we're probably on opposite idealogical sides.

I'm not stating I'm on any "side". But a developed-world government cutting anything close to 90% of revenue has a very small chance of ever becoming reality. We can talk about the way things ought to be but, as it stands now, the "far right" in Canada wants lower unemployment as much as the "far left". Given that is where the ends of the debate rage, the question remains how best to accomplish this goal. Both ends agree, much to the surprise of many, that lower taxes are a way of doing this. I still maintain that cutting CIT in and of itself does not necessarily lead to more jobs for Canadians. To ensure the CIT cuts are "passed on" in the way of lower unemployment the old Tory/Grit playbook is to direct corporate investment onto home soil using the usual incentives. (At least that has been the reality in decades' past.)
my point is the government shouldn't be trying to create jobs

Unfortunately for you, there is no federal party that isn't. Or do you think that buying multi-billion dollars worth of complex, expensive, and yet-to-be-tendered war planes is for defence? Politicians on the ropes are notoriously focused on jobs, jobs, jobs.
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Re: Corporate Income Taxes

Postby newguy » 01 May 2011 09:54

jesse wrote:I still maintain that cutting CIT in and of itself does not necessarily lead to more jobs for Canadians.......
Politicians on the ropes are notoriously focused on jobs, jobs, jobs.

I agree and I think cutting CIT is better for productivity than absolute number of jobs.

Politicians focus on number of jobs because they translate into votes. It doesn't matter on whether or not it's a productive job.

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Re: Corporate Income Taxes

Postby adrian2 » 01 May 2011 11:30

I've just realized another side effect of cutting the CIT with the accompanying DTC: it increases future government revenues, in a non-trivial way!

Just add up all the big companies retained earnings: if they were paid up today, it would lead to a total number for individual DTC's. Paying dividends in the future, with lower CIT and DTC effectively devalues the credit for corporate earnings taxed in the past at a higher rate. :shock:

Ah, those leftist wolves disguised as Conservative sheep! :D
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Re: Corporate Income Taxes

Postby ghariton » 20 Jan 2012 02:14

OECD Working Paper on Taxes:

The abstract:

This paper examines the relationship between tax structures and economic growth by entering indicators of
the tax structure into a set of panel growth regressions for 21 OECD countries, in which both the
accumulation of physical and human capital are accounted for. The results of the analysis suggest that
income taxes are generally associated with lower economic growth than taxes on consumption and
property. More precisely, the findings allow the establishment of a ranking of tax instruments with respect
to their relationship to economic growth. Property taxes, and particularly recurrent taxes on immovable
property, seem to be the most growth-friendly, followed by consumption taxes and then by personal
income taxes. Corporate income taxes appear to have the most negative effect on GDP per capita. These
findings suggest that a revenue-neutral growth-oriented tax reform would be to shift part of the revenue
base towards recurrent property and consumption taxes and away from income taxes, especially corporate
taxes. There is also evidence of a negative relationship between the progressivity of personal income taxes
and growth. All of the results are robust to a number of different specifications, including controlling for
other determinants of economic growth and instrumenting tax indicators.

I guess the Conservatives had half of the right policy, albeit for the wrong reasons. By contrast, the Liberals and NDP look economically illiterate.

I note that none of the parties are even talking about the possibility of raising the HST/GST. Political expediency wins again.

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Re: Corporate Income Taxes

Postby Springbok » 20 Jan 2012 11:13

ghariton wrote:I guess the Conservatives had half of the right policy, albeit for the wrong reasons. By contrast, the Liberals and NDP look economically illiterate.

I note that none of the parties are even talking about the possibility of raising the HST/GST. Political expediency wins again.

George


Governments need to tax us in one way or another. If we cut corporate taxes to zero as some would have it and not increase our already high consumption taxes, where will government revenue come from?

Maybe we should look at whatever Greece did , and do the opposite ;)
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Re: Corporate Income Taxes

Postby brucecohen » 20 Jan 2012 17:57

Springbok wrote:Governments need to tax us in one way or another. If we cut corporate taxes to zero as some would have it and not increase our already high consumption taxes, where will government revenue come from?

At the very end of the paper, the author states:
Secondly, any empirical insight generated
from cross-country macro data only reveals a picture that is true on average. Under specific circumstances
in specific country cases, there may be reasons to expect deviations from the general patterns presented
here, and to assume different effects of certain tax instruments. Such cases could arise, for example, where
countries already rely very heavily on one of the tax instruments identified here, so as to make them
significant outliers from the sample average.
A closer look at the specific situation of a given country is
therefore needed before making policy recommendations on the basis of the empirical analysis presented
here. For most cases, however, tax reforms towards property and consumption taxes, and especially away
from corporate taxes, are likely to enhance the prospects for economic growth.

So, before we apply his findings to Canada, we'd have to know if the govt currently relies very heavily one form of tax as opposed to the others.

Not being a statistician, I don't understand his analysis. Did he correlate corporate tax paid* to the various country GDP growth rates? If so, was that adjusted for influences such education level of the workforce, trade treaties, which industries are dominant to what extent, etc. Also, given the multi-national makeup of major corporations, did he correlate corporate tax paid in a given jurisdiction to work and investment actually done there?

* I assume he did use corporate tax actually paid instead of the statutory rates. The US, for example, has the highest or second highest statutory rate in the OECD but, thanks to a handful of concessions and loopholes, US companies actually pay one of the OECD's lowest levels of corporate tax.
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Re: Corporate Income Taxes

Postby AltaRed » 20 Jan 2012 18:31

I would think there could be a case for 0% corporate taxes, but substantially increase tax on re-patriated dividends that would impact foreign owned entities. A zero corporate income tax would encourage Canadian capital investment growing the business into more profits (paid to us and pension plans as shareholders) while at the same time minimizing ex-Canada leakage. There would also be little inclination to hire hordes of tax accountants to find ways to make costs deductible and less need for CRA tax auditors to audit business (CRA often has full time tax auditors assigned to big corporations).
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Re: Corporate Income Taxes

Postby CROCKD » 20 Jan 2012 19:12

Springbok wrote:Governments need to tax us in one way or another. If we cut corporate taxes to zero as some would have it and not increase our already high consumption taxes, where will government revenue come from?


My bold.

Our GST/PST rates are not high compared to most other countries. VAT in the EU

EU: However Directive 2006/112 requires Member states to have a minimum standard rate of VAT of 15%

The current maximum rate in operation in the EU is 25%, though member states are free to set higher rates.


See Wikipedia item Value added tax

Looking at the table Tax Rates in the item listing EU and non EU countries it is obvious that Canada's rate is not high compared to most other countries. Consumption taxes are considered by most economists as a better way for governments to raise revenue than taxing income, individuals or corporations. And that is why most economists said it was wrong headed for the Harper Govdernment to reduce the GST from 7 to 5%.
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