May 02, 2016

In Alberta, workers -- not fat cats -- pay the price of business tax hikes

Paige MacPhersonAlberta CTF Director
 

(Paige MacPherson is the Alberta Director of the Canadian Taxpayers Federation. This op-ed was published in Business in Calgary magazine on May 1, 2016.)

If you want to help workers, raising business taxes just doesn’t make sense. It’s one topic over which you will find a good amount of consensus among economists here in Alberta. This topic is particularly critical in Calgary, which was recently found to be the most expensive city in Canada to do business.

Business tax hikes stifle investment and growth, preventing new jobs from being created.

But oh, how tempting to believe that business taxes are the silver bullet to generate mountains of revenue without having any actual people pay one penny. Businesses aren’t people, right? And any people who would be affected can easily afford it, right?

Ultimately, people do pay the price for business tax hikes – but not who we might think.

University of Calgary economist Jack Mintz found that for every dollar of corporate tax levied, the Alberta economy loses $82.

Raising the provincial corporate tax rate by one per cent reduces business investment by $6 billion and cuts 8,900 jobs.

Yet, business tax hikes can be a popular idea. A government poll commissioned prior to the last Alberta election showed that 69 per cent of Albertans favoured raising business taxes. Recall at the time, the government introduced the notion that some taxes had to be raised, ignoring the gigantic government spending elephant in the room. Following the election, Alberta’s NDP government raised business taxes by 20 per cent.

If the premise is that a tax must be raised, business taxes poll well because the general notion is that someone else is paying for it. It helps to think that the "someone else" in question is a wealthy CEO flicking cigar ashes onto the downtrodden from his penthouse office.

The caricature has allure, but profit is simply a reward for risk. Calgary’s job creators come in many forms – from Carhartt coveralls to suits to converse sneakers.

But the larger problem is that those who are impacted the most by business taxes hikes are everyday workers.

Former Statistics Canada chief economic analyst Philip Cross pointed out that:

“most serious economists find that corporations don’t pay income taxes … In fact, most studies show the brunt of corporate income taxes are paid through lower wages.”

That’s bad news for workers, but it also means less revenue from personal income taxes. Higher business taxes also “make Canada a less attractive location to invest,” as noted by the Canadian Manufacturers and Exporters, and “would increase Canada’s unemployment rate, thereby eroding job growth.”

Fraser Institute economist Charles Lammam points out that “corporate taxes are ultimately paid for by people either as workers through lower wages, consumers through higher prices, or shareholders through lower returns on investments including RRSPs.”

A study by the Institute found that a one percentage point increase in Canada’s 2012 combined federal-provincial business tax rate would lead to a reduction of $254 to $390 in a worker’s annual wage.

Over the last 15 years, Canadian federal and provincial governments of all stripes recognized the harmful impacts of raising business taxes and worked instead to decrease them. Unfortunately, here in Alberta that tide has turned. To truly help workers, our government would be better off to look at the facts rather than dreaming up fat cats.

 

Comments
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commented 2016-05-04 13:17:24 -0400
The original purpose, intent and effect of taxes is to discourage specific activities – they still do this today although the Kleptocrats paint it as a “fair share” collectivist duty, tax burdens still exert negative growth impacts on the things and activities they are levied upon – probably the worst offender is income tax which has been responsible for shrinking the middle class since the 50s
commented 2016-05-04 13:17:24 -0400
The original purpose, intent and effect of taxes is to discourage specific activities – they still do this today although the Kleptocrats paint it as a “fair share” collectivist duty, tax burdens still exert negative growth impacts on the things and activities they are levied upon – probably the worst offender is income tax which has been responsible for shrinking the middle class since the 50s
commented 2016-05-02 15:56:42 -0400
Richard Neufeld

Too true, so many people do not realize that a tax is an expense. Unfortunately, it is an expense that a business has no control over, except to reduce discretionary expenses elsewhere to maintain a decent profit margin to make the business worthwhile. Needless to say, the greatest discretionary expense is labour cost which is reduced by reducing wages, reducing hours or reducing workers; or all three. However the public unionized workers protected from such realities of life don’t get it.

These are usually the same ones that figure a refund on a personal income tax return means the government is paying them money; not that the government is returning money it over charged and interest free for the first four months it had the excess (Tax year ends Dec 31, but the fiscal year ends Apr 30). They do not realize that they are getting their own money back.
commented 2016-05-02 15:05:23 -0400
Even with mounting evidence from Stats Canada the NDP ignored the facts. When the Harper government lowered taxes, revenue Canada actually took in more tax revenue from corporations than would have collected with higher rates. More Canadians were employed and our pensions had good returns. There is no big pay day when tax collection is your only idea. Less government with fewer takers is the only way to prosperity. Let’s remember one glowing fact. Government employees are the least productive in today’s society. Time theft is a huge problem with government employees that is when they show up to work. The larger the government the less revenue you have to support programs. Once a corporation is driven out of business the government can not replace that lost tax revenue as the takers/ government employees take more revenue than they produce.
commented 2016-05-02 14:28:53 -0400
Many don’t realize that business don’t pay taxes. They pass them on to consumers in the form of higher prices. When the taxes, then prices, get too high for people to afford, the business closes its doors.
commented 2016-05-02 13:43:04 -0400
…..
I HOPE THE PEOPLE OF ALBERTA WHO VOTED NDP HAVE SEEN THE ERROR OF THEIR WAYS. THE REST OF CANADA CAN TAKE A LESSON FROM THE ALBERTA EXPERIENCE. NEVER VOTE FOR A SOCIALIST.

KEEP IN MIND THAT LIBERALISM NO LONGER EXISTS, THE LIBERALS ARE ALL MARXIST NOW.

RIGHT JUSTIN ?
commented 2016-05-02 12:37:50 -0400
well…at least I got to see Canada while it was still great !