Governments hurt people when they saddle businesses with higher taxes
Despite political rhetoric to the contrary, corporate taxes punish people—not faceless corporations, says Philip Cross, former chief economic analyst for Statistics Canada, in a new commentary published today by the Fraser Institute.
“Whenever governments go looking for cash, they often turn to corporate income taxes as a convenient and allegedly painless way to help balance the books—but taxing is only painless for government,” said Cross, who will author a series of essays on macroeconomics for the Fraser Institute in 2014.
“Empirical evidence suggests that corporate taxes are actually paid by consumers, workers and investors because only people can pay taxes. That’s a critical point missed by advocates of higher taxes on corporations,” Cross said.
In Canada, two provinces raised corporate tax rates in 2013, and Opposition leader Thomas Mulcair wants to raise the federal corporate income tax from 15 per cent to 22 per cent.
In his commentary, Corporate income taxes—Who pays?,Cross details the effect of corporate taxes on consumers, workers and investors, the damage to industry overall, and explains why increasing corporate taxes may be popular with politicians but makes for lousy public policy.
“Politicians want to insulate voters from higher taxes by raising corporate rates, but this often results in ordinary workers losing income or everyday consumers paying higher prices,” Cross said.
Cross also notes the misguided tax “targeting” of industry booms such as natural gas in Alberta and mining in Quebec.
“By the time governments identify a boom in profits and enact legislation to grab more revenue from a particular industry, the boom is usually over and the increased fiscal burden only worsens the industry bust,” Cross said.