Should the federal government increase corporate tax rates?

Andy Radia
Politics Reporter
Canada Politics

Read his lips: 'No new taxes.'

Thomas Mulcair has repeatedly said that the NDP will not raise personal income taxes should they form government after the next election. He has, however, been very upfront about his desire to raise corporate taxes.

We're now getting an idea of just how much that tax increase could be.

In an interview with the National Post, the NDP leader says that he would raise corporate taxes back to the level they were at before the Conservatives took office. In 2006, the federal corporate tax rate was at 22 per cent; it is now 15 per cent.

"Companies are not paying their fair share and individuals are, so yes we’re going to ask companies to pay their fair share and get back to something that resembles the U.S. level," Mulcair told the Post.

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Critics of the government have long-argued that the corporate tax cuts did little but pad the bank accounts of Canada's largest companies.

"There’s $800-billion of ‘dead money’ out there — and that’s not my term, that’s Flaherty’s," Mulcair said.

"How do you wind up with hundreds of billions just sitting there? Because companies are allowed to stockpile it without any threat of being taxed."

[ Related: Despite growing list of promises, Thomas Mulcair says NDP wouldn’t raise taxes ]

Obviously, that's not the way the Harper government sees it.

In September — after Mulcair mused about matching combined provincial/federal Canadian tax rates to the combined U.S. rate — Finance Minister Jim Flaherty wrote an open letter to the wannabe prime minister.

"Dramatic tax hikes, like the one you are proposing, take money out of the pockets of entrepreneurs that they use to keep Canadians employed, to grow their companies, and to hire new people," Flaherty wrote.

"Simply put, your 50 per cent business tax hike plan is a recipe for more unemployment and more business closures. This is the last thing we need, especially in the current period of global economic turbulence."

This debate could be the beginning of a potential ballot box question in the 2015 election: Should the Feds be increasing corporate taxes?

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Incidentally, this week, the Fraser Institute released a report noting that high federal and provincial personal income tax rates and the relatively low level of incomes at which they apply are hurting Canada’s economic competitiveness with the United States and other G7 nations.

While the focus of the study, titled The Economic Costs of Increased Marginal Tax Rates in Canada, is personal income taxes it also touches on corporate rates.

"Economists Young Lee and Roger Gordon (2005) explored the influence of corporate (business) taxes on economic growth," notes the report by the public policy think-tank.

"Using data for 70 countries for the period from 1970 to 1997, they found that increases in corporate tax rates led to lower growth rates within countries over time. In fact, their analysis suggested that a reduction of 10 percentage points in corporate taxes would raise the annual growth rate of countries by one to two percentage points."

(Photo courtesy of the Canadian Press)

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