Pontiac Perspective Peter J. Gauthier
During the last election, the Liberals promised to help the middle classes by reducing their tax burden. This loss of revenue was to be made up by increasing the tax rate on the very rich. However, their budget made only modest adjustments to tax rates. This raises the question of what are fair tax rates.
Pontiac Perspective Peter J. Gauthier
During the last election, the Liberals promised to help the middle classes by reducing their tax burden. This loss of revenue was to be made up by increasing the tax rate on the very rich. However, their budget made only modest adjustments to tax rates. This raises the question of what are fair tax rates.
The federal government gets most of its revenue from income taxes – on individuals and on businesses. The rate for individuals is based on their
taxable income bracket and ranges from about 15% to 33%. There are two
brackets for businesses: small businesses (11%) and corporations (15%). Recent changes in tax policy have changed the relationship between business taxes and individual taxes. The current 15% corporate tax rate is only half of what it was in the year 2000 (28%), which gives Canada one of the lowest corporate tax rates in the OECD. However, there has been no corresponding reduction in individual tax rates. The result is a shift of the tax burden from corporations to individuals.
The reason for this shift is claimed to be a better climate for business investments, but the argument does not seem to impress those making business investments. More important for businesses are wages, social stability,
infrastructure, fair and enforced commercial laws, and reliable services provided by the government. For example, compared with the USA, Canada’s health care greatly reduces the cost of providing health insurance to employees. Similarly, good roads make for easier transportation of goods. Businesses also want to know that property and labour laws are fair and equitable. Employees want the best schools possible for their children and access to higher education, which is needed for advances in employment opportunities.
The conclusion seems fairly obvious: while all businesses want to contain expenses (including taxes), they recognize the need for good government and are prepared to pay fair taxes. If the government really wants to help the middle classes, a better solution might be to raise the tax levels on corporations. As the corporate tax rates of most industrial countries are higher than Canada’s, the threat of reduced investment in the Canadian economy is minimal. Further, tax relief for the lower and middle classes result in greater consumption and more economic activity. This consequence will silence those who claim increased corporate taxes will only result in higher costs to the consumer.
If the federal government is serious about giving a break to the middle class it should look carefully at corporate tax rate and make adjustments that ensure all parties that the tax burden is distributed fairly.
