KPMG on Corporate Taxes

Yesterday, I appeared on CBC’s Lang & O’Leary Exchange regarding corporate taxes in response to Ignatieff’s announcement and KPMG’s 2010 Competitive Alternatives report. (To watch the video, search for “lang”, click “Most recent”, select March 31, and go 13 minutes in.)

My co-panellist, John Risley, seemed more interested in talking about the “dinosauric” nature of unions and the need to “reform” healthcare in Canada than about corporate taxes. So, we never really got down to brass tacks on the KPMG study. What did it actually indicate about corporate taxes?

First, “taxes typically represent up to 14 percent of location-sensitive costs.” Since corporate income tax (CIT) is only one of the taxes paid by business, it alone accounts for an even smaller percentage of costs. Therefore, changes in the CIT rate have very little effect on total business costs.

Second, Canada’s effective CIT rate is about 4 percentage points below the next lowest country (Holland) and about 10 percentage points below the other countries examined (see exhibit 5.10 on page 60 of volume I). So, Canada could raise its CIT appreciably and still have a lower CIT than our main competitors.

Third, Canada had the second-lowest costs overall. The current round of federal CIT cuts was introduced in the 2007 Economic Statement. Looking back before that, Canada had also ranked second in the 2006 Competitive Alternatives report (PDF). Apparently, the latest CIT cuts have not affected our overall ranking.