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Big firms hoard tax cut riches while economy drags: CLC

Cuts in the tax rates for Canadian big business, promoted as powerful stimuli to economic growth, are not delivering on promised improvements in jobs and productivity, according to a study released by the Canadian Labour Congress on Jan. 30.

Despite business tax cuts by Liberals and Conservatives since 2000, and expectations that tax relief would lead to more jobs and productivity, the study suggests the main impacts of the cuts have been to jack up executive salaries and fatten hoards of "dead money" in company coffers.

According to the CLC, "… cuts in corporate income tax have contributed to a significant increase in cash reserves held by corporations, delivered higher compensation to CEOs, cost Canadians billions in lower than expected government revenues, led to a higher federal deficit and debt, and cuts to public services."

Under the new business tax regime, since 2000 federal corporate tax rates have plummeted from 28 per cent to 15 per cent. Corporate Tax Freedom Day, the date by which businesses have earned what they will pay in taxes that year, came two days earlier this year, on Jan. 30. In contrast, Tax Freedom Day for individuals, as tracked by the Fraser Institute came on June 11 last year.

According to Statistics Canada, the cash reserves of non-financial corporations in Canada increased by $72 billion in 2011, from $503 billion in cash reserves by the end of 2010 to $575 billion by the end of 2011. (Financial companies are excluded from this measure because the nature of their businesses means that they regularly hold large cash reserves.)

Charles Lammam, a tax and budget policy director at the Fraser Institute, disagrees with the CLC conclusions.

"The economic research is clear," Lammam told the Tyee by phone from the Institute's Vancouver offices. "Lower tax rates on business lead to higher levels of investment, more expansion and more jobs."

Lammam disputes the CLC contention that business cash reserves represent unproductive hoarding. He pointed out that the current level of economic uncertainty may mean that new investments are being delayed. He also dismissed the contrast between corporate and individual tax freedom dates, saying that in the end corporate taxes are paid by individuals as well, albeit indirectly.

Seth Klein, director of the B.C. offices of the Canadian Centre for Policy Alternatives and author, most recently of "Progressive Tax Options for BC," disputes Lammam's arguments.

"It is true enough that in the end individuals pay for corporate taxes, but almost always the tax paid is at reduced capital gains rates. And a lot of corporate profit flows to offshore investors and escapes Canadian taxation. We still need to be taxing corporations and I think the evidence is clear, as our research shows in B.C., that tax cuts to business do not deliver a stronger economy. We've seen provincial business tax rates cut from 16.5 per cent to 10 per cent since 2000 here, and it has done little to help the province's economy by delivering more investments."

Tom Sandborn covers labour and health policy matters for the Tyee. He welcomes your feedback and story tips.

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