The Corporate Tax Regime In Canada Is Corporate Welfare

... and it is being done at the expense of Canadians.

Corporate Canada Pays Low Taxes But Contributes In Lots Of Other Ways

Consider the following:

PricewaterhouseCoopers did its own analysis — a survey of the Canadian Council of Chief Executives' roughly 150 members. It was voluntary and only 63 replied. But of those who did, the survey found their businesses paid a total of $19 billion in corporate taxes, plus another $5 billion in various other charges and fees to various levels of government.

Okay, that's a voluntary survey, and doesn't give us the entirety of the picture.

The left-leaning advocacy group Canadians for Tax Fairness said they did an analysis of the top 60 companies listed on the Toronto Stock Exchange, and found only four companies paid the full corporate rate. More than half paid less than 10 per cent, and 13 firms paid less than five per cent.

But, let's take a look at how much was transferred out of Canada, shall we?

For example, in 2011, Canadian businesses invested $53.3 billion in Barbados, third only to the United States and the United Kingdom. By some estimates, the Canadian government is losing $80 billion a year in tax revenue due to this kind of profit-shifting.

Do you see anything wrong with this?  I certainly do.  What it boils down to is that the Corporate tax system in Canada has been gutted from the inside not just with a series of rate cuts, but also with a series of bookkeeping games that make it easier for corporations to shuffle money offshore before it appears on the bottom line ledger.  (at least of the "official" set of books that CRA would see if they did an audit.

In response to this blatant tax dodging, we get the following patronizing response:

"Corporate Canada pays governments in lots of other ways. They pay different levels of governments, they pay property taxes and they pay a variety of fees and charges that in many cases actually exceeds what they pay in corporate income tax," said John Manley, head of the Canadian Council of Chief Executives

Oh gosh, they pay property taxes.  You don't say.  So do I ... your point is what?  Oh, and those "fees" you mention - yeah, well, I get hit with those every time I contact the government too.  I pay fees to register my car, my driver's license, on my utility bills for garbage pickup and water/sewer every time I make a transaction with the government in fact.  Don't feed me a sob story about how hard done by you are with "fees" to the government.

"It's not right," Mr. Manley said. "But figuring out how to fix it without unintended consequences requires really smart people, and the Organization for Economic Co-operation and Development has been working at this for a very long time." 

Mr. Manley said the Canadian Council for Chief Executives supports the OECD's efforts, but until the Canadian tax code changes, businesses have every right to take advantage of what the code allows. 

"There is no one in Canada who wouldn't avoid paying a tax if there is a legal way to do it," he said. "It doesn't mean it's wrong to minimize your tax. It just means that governments have to get rules in place and make sure everyone is playing by them."

The issue is that governments have spent the last twenty years downloading the bulk of the tax burden onto middle income earners and telling us that they are "cutting taxes", when all they have been doing is playing to the sociopaths in charge of the large corporations.  It's not small, privately held, corporations that are the problem here - it's the big entities who have the time and resources to invest in figuring out the next way to game the system or lobby the government into opening new loopholes for them to exploit.

Under the Harper Government, we have seen them consistently reduce the tax rates, downloading everything they can from the Federal level to lower levels of government, at the expense of individual Canadians.  Just as we found in Alberta under Ralph Klein, yes the budget appears to be balanced, or even in a surplus position.  Except that there is a growing deficit in other areas - infrastructure, social programs and the like - things which affect individual Canadians far more dramatically.

Lower taxes is a false economy - it does not result in more efficient government, nor does it "encourage investment".  For the last couple of decades, the corporate world has used the "if you tax us too much we'll stop investing here" as a threat.  It's time to call their bluff.  Companies that want Canadian talent will stay here.  Those that leave will open opportunities for Canadian companies to move into.  It's time that we stopped acting afraid of the multinational corporations and told them pay their fair share.

On The Lac Megantic Disaster

I have refrained from commenting on the Lac Megantic disaster in part because I do not want to tread on the very real grieving of those who lost friends and family as a result of what happened there.  On a human level the entire situation is tragic.

However, after reading The Toronto Star's Exposé, I wanted to address it in the context of my previous posts (here, and here)  on the structure of our economy.

When he [Burkhardt] took over the Montreal, Maine & Atlantic Railway in 2003, he cut employee wages by 40 per cent according to a company history in the Bangor Daily News.

There were more layoffs and cuts in expenditures in 2006 and again in 2008.

The company also announced plans “to improve safety and efficiency” by cutting its locomotive crews in half, replacing two workers with a single employee.

That prompted at least one veteran engineer to quit the company in part over his fears for safety.

Jarod Briggs, who had worked on railways since 1998, told the Star he left MMA in 2007 because he thought leaving only one engineer in charge of a train — as happened in Lac-Mégantic — was too risky.

This is hardly the first time that I have seen and/or heard about this kind of blind cost-cutting in corporations.  I've said it before, and I'll repeat it again - Money has no moral or ethical framework.  Those who allow their business activities to be driven solely by money inevitably fall into the trap of forgetting that their businesses affect people, and are far more than just balance sheet numbers.

Burkhardt's whole approach to business seems to be very similar to the corporate vultures of the 1980s - sweep in, make massive changes and sell the company while the cash flow looks positive (and before the costs of the cuts made start to make themselves felt in other ways).

When restructuring a second tier banking organization, you can get away with this, and not really affect anyone except the staff you are firing.  Burkhardt's mistake is to apply that same kind of logic to a business where people die if something goes awry.

But, while Burkhardt might be the villain of the hour simply because his company just killed dozens of people in Lac Megantic, it is far more clear that we should look upon his practices as an example of the kind of corporate malfeasance that goes on every day in boardrooms around the world.  Burkhardt got caught out - although not for the first time.

It seems more and more clear that there is an enormous gap between corporate governance and the interests and needs of the people whose lives are directly or indirectly associated with them.  Lac Megantic is the unfortunate victim of that - and the fact that their scheme for only one engineer to oversee a train required Transport Canada approval merely underscores the problems that have developed as corporations have gained more influence over the governments.

Will Gen Y Separate Business From State?

This is a bit of a philosophical piece, considerably speculative in nature.

It has occurred to me in the last few weeks that we have a problem in the Western world that needs to be addressed - the notion of separating Business from the State.  

While history seldom repeats itself explicitly, it does repeat in varying degrees.  The process of separating church from state began with the Magna Carta's signing.  While the Magna Carta was about limiting the powers of the English monarchy, it inherently started the process of limiting the ability of the power structure in the ecclesiastic world from driving state policy.  At that point in time, senior clergy had very direct access to the monarch, and therefore, very direct influence on the direction of state.  It is, in fact, that reality which gave the Church such wonderful advantages as being property rich and tax exempt.  

Today, it seems to me that big business has achieved a place in the power structure of our governments that is similarly privileged to the Medieval Church.  As a case in point, we have the gutting of Canada's environmental laws and agencies, done by the Harper Government largely at the request of oil industry in a recent omnibus budget bill.  Further, the costs of government have been steadily downloaded from the largest income groups - the wealthy, large corporations, etc. - to the middle class.  

What has happened here is that over the course of the last half of the 20th Century, business has moved into very much the same place that used to be occupied by the clerics in the Middle Ages.  Instead of Bishops and the like sitting at the monarch's side, we have lobbyists paid by mega corporations to forward their legislative agendas; big money like the Koch brothers are well known to purchase influence through Political Action Committees (PACs), astroturfing organizations and other vehicles.  The net effect is that politicians no longer worry about whether they can gain the support of voters, but rather spend their time courting the support of the big money types that can afford to spend huge dollars buying votes with enormous advertising campaigns.   

The upshot?  Politicians no longer feel beholden to the voters, but rather spend the bulk of their attentions on the interests of the corporate big money interests that have their direct attention.

This is not necessarily new - the wealthy and powerful have always sought a place of privilege at the table of power.  In the past, this included the Christian Church.  Eventually, as the notion of secularism grew and the concept of religion as an individual freedom took hold, society moved collectively to separate government from the influence of specific religious movements.  (I will, for the moment, maintain the fiction that this is true in the US and Canada, although I do personally recognize the growing influence of religious extremism in the US on government)

What has changed is the alignment of interests.  As North America came out of the Great Depression, there was an alignment of objectives between the wealthy and the middle classes, reflected in FDR's "New Deal" economic program, and other parallel endeavours in other parts of the world.  Over the last thirty years or so, that alignment of interests and objectives has diverged significantly.  To the extent that government that is supposed to represent the interests of the people has ceased to do so on multiple levels.

In part, this is the consequence of the Baby Boom generation having gained power and lost sight of what power means; in part it is a reflection of the ever increasing concentration of wealth and power in the hands of a relatively small number of people who are becoming more and more wealthy, and have gained control over the levers of power with their wealth.  The political disengagement of the Gen X, Gen Y and Millenial generations comes as no big surprise - they are individually much smaller than the Boomers, and have been unable to influence the juggernaut that started with the rise of the neoCons in the early 1980s.

However, the combined size of these three generations, combined with the Baby Boom generation starting to retire (and ride off into the sunset) does change the available dynamics.  As these three generations become allies, it is my hope that collectively they will start the process of disconnecting the big money power brokers from the government, returning it to the people and their collective interests.

Abolishing Corporate Taxes

Writing for the Globe and Mail, Doug Saunders is arguing that we should abolish corporate taxes.

But corporate tax, by its nature, has a reverse Robin Hood effect: It is regressive. Big corporations have no trouble avoiding it. They can do any number of things, including acquiring other companies or shifting profits to overseas divisions, that make their balance sheets legally register zero profit. So small- and medium-sized businesses end up paying the full burden – a situation that chokes off entrepreneurship, reduces competitiveness and damages economic growth.

So ... in essence, Saunders is arguing that because of a swiss-cheese legislative approach to corporate tax law that we should abandon the idea entirely. I disagree with Mr. Saunders entirely on this.

There are a dozen things wrong with Saunders' reasoning here.

First of all, his comment about a "reverse Robin Hood effect" is a very narrow view of the situation. I will agree that there has been a growing concentration of wealth in the hands of the very wealthy. I do not agree that you can meaningfully place responsibility for that concentration at the feet of corporate taxation policy.

The real issue is that governments have allowed multinational corporations to become a law unto themselves over the last thirty years. Additionally, the multinationals have become very skilled at playing the governments off against each other by playing up fears of job losses and infringements upon national sovereignty. What really needs to happen is for the governments to get together and start creating agreements that tighten up the loopholes that the multinationals are using to sidestep the taxation laws in various countries that they operate in.

There is another strong argument against corporate tax: It gives businesses far too much power in politics, law and society. As “taxpayers,” corporations are given citizen-like rights in court and legislatures; as financiers of the state, they are given far too much lobbying power and influence over legislation

Again he's partially correct and grossly incorrect. The first point I have to make is that the notion of a corporation as citizens is a construct that has its roots in far more than taxation policy. I doubt that even if you were to offer to abolish corporate taxes that the corporations would accept having their voices relegated to the back seat any more.

The rise of corporate influence - especially in democratic countries - has severely weakened democracy. There is no doubt that it is necessary to take steps to curtail the abuses of power that are resulting from this. However, the solution to such ills as influence peddling, excessive lobbying and so on are not to be found in removing the taxation burden. These areas must be addressed with greater accountability on the part of both lobbyists and politicians. Essentially there must be double blind, audited records kept by all government officials who have decision making powers.

Lastly, if Mr. Saunders thinks that eliminating corporate taxes will somehow magically increase corporate investments in long term jobs and other related tasks, he is sorely mistaken. All it will do is make it still easier for the already wealthy to get even wealthier, and to do so entirely at the expense of middle and low income citizens. His fundamental point starts and ends with the dubious notion of trickle-down economics as practiced during the Reagan years - it wasn't terribly successful then, and I doubt that there is anything in place now that would change the outcome of such a structure today.