I was reading last week a letter from McGill Economist Christopher Ragan published in the Gazette. He was saying that he would vote for whoever promised to remove all corporate income tax. The idea was that the owners are already being taxed on their personal income tax. Also, since companies are much more sensitive to tax fluctuations the corporate tax cut would have a greater effect on the economy than an equivalent general or personal tax cut.
To make a proposition like this work it seems that you would need to make sure that the owners (stockholders) of the company are Canadian. This led me to think about how you could implement differential tax rates for Canadian Vs Non-Canadian companies. Basically, you would have different tax rates for corporations depending on the level of their Canadian ownership. The more Canadian the company, the less tax they would pay culminating with 0 taxes for those with 100% Canadian ownership. This is one way to ensure that the income lost by cutting corporate taxes is recuperated afterwards.
There are still many unknowns in this idea (to me anyways). The first is whether all of this is legal per our international agreements. We are part of several Free Trade Agreements and this could be seen as unfair competition. The second is whether or not this is even worth it. We must go towards more social services, not less, and there is no guarantee that the government will end up with more money in the end. It will increase the level of retained earnings in companies and the idea is that even these will trickle out in wages and investments. What happens, if those investments are made oversees? We could add an "Oversea tax" but that would increase bureaucracy and costs for the government. It might also end up preventing Canadian companies from setting up shop in other countries to become more competitive and better serve their target markets.
2 comments:
stock owners get taxed twice once with the corporate tax then again with the tax on the earnings from the stock so I see how your idea could be useful but then you will encourage foreign companies to trade here building just shell companies and by partnering with dummy investors could make sure not to pay the taxes as foreigners
Is it a bad thing? In the end, you would get companies that you wouldn't have in the country anyways. they would pay little taxes through the proxy, but that's still money coming in the government coffers. Also, wouldn't profits be distributed according to the percentage of ownership? therefore, if you put a 50% Canadian owner to have tax cuts on your corporate profits, you would still have to pay taxes on that 50% within the country. The company would still be paying income tax since it isn't 100% Canadian
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