January 28, 2011

Why Corporate Tax Cuts Don’t Matter to Me

By admin

And Shouldn’t Matter to Most Canadians

Corporate tax cuts border on the theoretical.  Will cuts to the world’s largest corporations generate more jobs here or enrich the treasury of the countries that they’re home to?  Does Wal-Mart really “invest” more in Canada when they pay lower taxes?  Does GM do more R&D research here simply because we’re making it easier for them to have a fatter bottom line?

Do corporations generate more jobs than the local resources that they use?

The short answer is no, but I’m sure all of these and more questions merit additional research.  In fact, the Progressive Economics Forum argues that corporate income tax cuts can actually lead to a reduction in employment.

With all that said, I’ll tell you one thing:  corporate tax cuts mean jack shit to me.

Here’s why.

Like millions of other Canadians, I run and own my small business.  It’s a sole proprietorship and like all sole proprietorships, 100% of the income that I generate goes to my personal income so I’m taxes at the personal income rate, not the corporate rate.  Yes, as far as the CRA is concerned, I submit a business filing every year, but the filing reflects my personal income and not a business income.

In most provinces of Canada, the number of small businesses that employ 1-4 people (ie. usually 1 + a family member) almost always exceed 50%, in many cases 60%.

By the end of 2009, the number of small businesses was approximately 2.4 million.  I’m guessing that today that number is closer to 2.5 million.

In other words, a significant portion of the population of this country is dependent on small business income.

To put it another way, slashing corporate income taxes is nothing more than posturing and a platform for ripping off the average guy or girl that works 16 hours a day to make their business work while the ‘Fortune 500’ make more fortunes.

If any party in this country wants to win a majority in this country, all they have to do is stop dropping their pants for the bigwigs and start fulfilling on promises to support small business in this country.  Here are some ideas related to this kind of platform:

  • Allow a $100,000 business income exemption for any qualifying small business (to be defined).
  • Alternatively, promote a tax exemption for qualifying small businesses to the tune of $250,000 or three years, whichever comes first.
  • Allow RRSP investments in your own small business, subject to approval (similar to the popular ‘Home-Buyers Plan of the 1980s/1990s).
  • Consider alternative models for small business and economic activity, including co-ops, non-profits, charities and so on.  Then consider tax breaks for these organizations as well.
  • Stop wasting money on mega-budget programs like defence and prison systems.  Use saved money for digital and physical infrastructure.

Getting 2.5 million small business owners on your side will translate to influence.  They’ll make donations, but more importantly, they’ll hang your sign in their window, they’ll influence their family members and they’ll maybe even volunteer some of their precious time to support your team.

What are your suggestions?  I’d like to know, as I’d like to expand on ideas for generating good platform from the small business angle.