High Corporate Taxes in Canada and the U.S. Compared to Rest of the World

September 28, 2007

An article by Lorne Gunter in Canada’s National Post on Monday reiterates what we already know: a higher corporate tax rate will lead to decreased investment and productivity and cause capital outflow as companies move their operations to countries with lower taxes. Gunter had this to say:

While the U.K. is committed to reducing its corporate tax rate this year to 28% — what [the C.D. Howe Institute] calls the “tax-revenue-maximizing rate” — “most of the world’s major economies rely on corporate rates in excess of 30%.”

The irony is that as corporate taxes rise above 28%, tax revenues actually decline. Large companies move their operations to low-tax countries, taking their income and jobs with them. Meanwhile, smaller corporations reduce their investment, which ultimately lessens their productivity and income. Corporate taxes above 28% narrow the tax base and slow growth, lowering — not increasing — government revenues from businesses.

By keeping taxes high, Canadian governments are not only discouraging the investment our economy will need to generate the revenue future generations will require for their benefits. High taxes are lowering revenues now and stunting current job creation and economic expansion.

The relative mobility of capital allows corporations to effectively pack up and move when the tax climate is not beneficial to them, which of course will lower tax revenue, all else equal. Both Canada (with a corporate tax rate of 36.4%, the 11th highest in the world) and the U.S. (39.3%, 2nd highest) would do well to take Gunter’s advice and start making their corporate tax rates more competitive in the global economy.

As previously mentioned here, something else to consider is that cutting corporate tax rates can help low-income wage earners even more than a general personal income tax reduction.


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