Reversing Harper’s Corporate Tax Cuts

Last week, I argued that discussions about reversing tax cuts should not be limited to the GST. To advance this debate, I have crunched some numbers on corporate taxes using federal budget documents and tax expenditure reports.

Budget 2009 (see Table A2.2 on page 255) indicates that federal corporate tax cuts since 2006 will reduce annual revenue by $14.9 billion in 2013-14. (By comparison, the two points removed from the GST will cost a little less: $14.6 billion.)

Taking Finance Canada’s numbers as given, the federal government could collect an additional $47.7 billion over the next four fiscal years by reversing all of Harper’s corporate tax cuts. By 2013-14, this approach would add $14.9 billion to annual revenue.

Estimated Cost of Federal Corporate Tax Cuts ($ billion)

 

However, this package included reducing the “small business” tax rate from 13.12% in 2007 to 11% since then. No party has the political will to reverse that corporate tax cut.

The package also included accelerated capital cost allowances for computers and manufacturing equipment. These measures are temporary, affordable and targeted to new investment.

By far the most costly measure is slashing the general corporate tax rate from 22.12% in 2007 to 15% in 2012. Simply restoring this rate to its pre-crisis level would generate $41.8 billion over the next four years and regain $13.7 billion of annual revenue by 2013-14.

Another option would be to keep the general corporate tax rate at its 2010 level of 18%, rather than cutting it to 16.5% in 2011 and 15% in 2012. Just maintaining the status quo would save $14.4 billion over the next four fiscal years and $5.8 billion of annual revenue by 2013-14.

In the short-term, funds retained by cancelling corporate tax cuts should be redirected to more effective stimulus, such as targeted tax measures or public works. In the longer-term, restoring the general corporate tax rate to its 2007 level would collect more than enough revenue to wipe out the annual deficit of $11.2 billion that Finance Canada projects for 2013-14.