Earlier this week, federal opposition parties joined forces to demand that the Conservative government reverse its reductions on the corporate tax rate. “[This] will send a very clear message that this government ought to change course,” warned Liberal leader Michael Ignatieff.
But if increasing corporate tax rates is good policy, why have governments of all ideological stripes across Canada done the opposite and slashed them?
It’s because they understand the economics. Business tax reductions yield significant benefits to all Canadians by way of making the economic landscape more attractive for investment. Jurisdictions that lower business taxes increase the after-tax rate of return on investment. Increased returns, then, provide the incentives for investment and leave firms with more money to reinvest.
When businesses invest in machinery, equipment, and technology, workers have more capital to work with and can produce more and higher valued output for each hour they work. In other words, workers become more productive. Because increased productivity leads to higher wages, workers, in the end, benefit greatly from corporate tax reductions.
The Liberal government of Jean Chrétien and Paul Martin got it: “Business income tax rates have a significant impact on the level of business investment, employment, productivity, wages and incomes.”
Michael Ignatieff is not only out of step with his own party’s predecessors but a bipartisan chorus of leaders that have all seen how lower corporate taxes can create jobs. For Ignatieff to go after corporate taxes as an election issue, it might be good politics but it’s definitely bad policy and shows him to be another tax-and-spend liberal who cares more about the size of government then the money left in your wallet.