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Canada would gain at least $11 billion per year in corporate tax revenue from a global minimum tax rate at 21%, according to a study released by international corporate tax experts.
Ottawa (15 April 2021) — The Biden administration in the United States is moving at a pace we aren’t used to seeing from U.S. governments — at least not movements in a positive direction.
Specifically, there are 3 good ideas we should consider up here in Canada.
One of the most potentially important proposals is for an international agreement on a minimum corporate tax. This is a critically needed move.
Too many huge corporations are tax dodgers, using legal but immoral methods to create the legal fiction that they actually earned most of their profits in countries that make a business of sheltering tax cheaters.
In the U.S., massively profitable corporations like Nike and FedEx paid zero taxes on those massive profits.
Canada would gain at least $11 billion per year in corporate tax revenue from a global minimum tax rate of 21%, according to a study released by international corporate tax experts.
The Biden proposal would end the destructive race to the bottom whereby countries compete for business investments by trying to undercut other countries through lower corporate tax rates.
That’s a terrible process.
So why do governments do it? The myth is that cutting corporate taxes will lead to job creation. Let’s be clear — there is no evidence that lower corporate taxes create jobs. None. In fact the most credible meta study ever done says that the evidence is irrefutable: lower corporate taxes create inequality, not jobs.
And remember what happened when Stephen Harper cut corporate taxes in 2015? Rather than spending the new-found money to create these promised new jobs, corporations just sat on it. They sat on nearly $700 billion, so much so that the Bank of Canada Governor called it “dead money.” No new jobs, just more inequality.
When the former prime minister Stephen Harper, a Conservative, and the International Monetary Fund agree that inequality has reached dangerous levels and must be curbed, you have to know that the issue of inequality is causing immense hardship.
So, let’s strongly support the U.S. call for an international minimum corporate tax.
But as we’re doing that, we need to address the problem of our own provinces racing to the bottom when it comes to corporate taxes.
Jason Kenney is the most recent example, cutting taxes for profitable corporations to the bone, cutting desperately needed tax resources for his government, and crowing about the fact that this will attract business investment — from other provinces.
He has even created a purely fictitious number of jobs that will be created from those tax cuts, with not a shred of evidence to back that up.The only things those tax cuts will do is, on the one hand allow already profitable corporations to make more money, and on the other hand, make sure that Alberta does not benefit from any of that.
Why would we not develop a minimum Canadian provincial corporate tax? If it is a bad idea to have countries compete in a race to the bottom for corporate taxes, and it most assuredly is a terrible idea, then why does it make sense for the very same thing to happen in Canada between provinces?
We hear lots of bleating from conservative voices about how we need an interprovincial free trade deal. That will only benefit a few large corporations, and will hurt everyone else, with jobs losses included.
What we really need is an interprovincial agreement on the minimum rate for corporate taxes. Just like we need that kind of agreement internationally.
There is another thing we should "borrow" from the Biden government.
In the U.S., the Biden Rescue Plan with its $1.9 trillion in federal spending is a shot in the arm to state and local governments. It will help keep essential workers on the job. But there’s also a critical piece worth copying. There is a provision that prevents stimulus funds from subsidizing new tax cuts at the state level. A state cannot use the money to cut corporate taxes, or inheritance taxes.
Our provinces should not be eligible for federal transfers, if they are just going to turn around and use that federal money to subsidize the province while they cut taxes for profitable corporations.
Federal money should come with strings attached — it should only be used for the purposes identified. If it’s a transfer for health care, it should only be usable for health care. A transfer for education should be spent only on education, under the standards required by the transfer.
And a provincial government that cuts taxes on profitable corporations, and then asks for more money from the federal government, should be told they are out of line.
After 4 awful years, when almost everything the federal government in the United States did was an embarrassment, there is now a government in place that is moving in some very positive directions.
We should be using the best of the ideas we see coming forward. Eliminating the destructive race to starve government by cutting taxes on profitable corporations is the obvious place to start.