Social Justice and Democracy

What did Corporate Tax Cuts Deliver? (2013)

January 10, 2014

Due to ongoing corporate tax cuts, corporate income tax makes up a falling share of all government revenues. In fact, by the end of January 2011, corporations had fully paid their share of provincial and federal taxes, two days earlier than in 2010.

The general federal corporate income tax rate stood at 28% in 2000. It was cut to 21% under the Liberals, and then cut in stages, from 21% to 15%, under the Conservatives. The most recent cut was from 16.5% to 15%, effective January 1, 2012. The corporate tax rate remains the same in 2013, at 15%.

The argument to cut corporate income tax has been that increased, after-tax, corporate profits would be re-invested in company operations, boosting economic growth, productivity, and jobs. However, studies have shown that rising corporate after-tax profits have not resulted in increased real investment.

Instead, 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.

Corporate income tax cuts have helped private, non-financial corporations in Canada hoard more cash. According to Statistics Canada, the cash reserves of non-financial corporations 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. This extra $72 billion of “dead money” is money not at work increasing productivity, or creating more and better jobs in Canada.

When looking at taxes and cash reserves of Canada’s largest non-financial companies, those listed on the S&P/TSX Composite Index from 2001 to 2011 (financial companies and conglomerates are excluded because they typically hold large financial investments as part of their ongoing business), we find that the top-10 Corporate Hoarders have collectively accumulated $27.7 billion in cash1 since 2001.

In line with cuts to the statutory federal and provincial tax rate, the effective tax rate of Canada’s largest non-financial companies (that is, taxes actually paid to the federal and provincial governments as a share of pre-tax profits) has fallen, from 40% in 2001, to 32% in 2011.

The leading cash hoarder in 2011 was Teck Resources Limited, which accumulated over $4.4 billion in assets over this period.

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