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.

Not Just Chilling ...

I've talked before about the rise of corporate feudalism.  As it emerged in the Middle Ages, Feudalism was not entirely a bad thing - it created an environment where there was a structure to protect each other from the predations of others.

Sadly, what is emerging in the world of Corporate Feudalism is less about mutual protection and sharing of resources than it is about control.  Control of wealth, control of information and because it takes people to use information, control of people.

So, when a company like Chevron moves to gain access to the e-mail accounts of activists who have been protesting the company's activities in Central America, it comes as no surprise.  Should you be scared?  Absolutely.  Consider that Chevron is a corporate entity, not an agency of the law itself.  Where (in theory) a law enforcement agency is bound to treat the information gathered in the course of an investigation with a degree of caution, Chevron is not bound by any such constraints.  Should they choose to, they can not only access this data, but release it in whatever form suits their purposes; or mine it for information patterns that can be used against individuals and entire groups.

If that isn't terrifying enough, consider that the information used can easily be used to infer where an individual is at any given moment in time.

No, this isn't just chilling - it is terrifying.  The implications are far reaching, as it places information about private individuals in the hands of those whose interest in that information is at best questionable. If you accept the notion that the rule of law stays the hand of an overreaching state (something that is becoming ever more questionable), then we must ask what stays the hand of a transnational corporation when it has access to this kind of information?

The timing of this is particularly troubling for Canadians who have recently learned that their government has been compiling lists of "enemies", and using that information in ways that are as yet unclear.  If, at the level of our ministers they are gathering "enemy lists" (how delightfully paranoid of them), one can imagine what is going on at other levels of the power structure.  The Harper Conservatives' CIMS database is known to have played a key role in the Robocalls Voter Suppression Fraud.  What is to stop them, or any other entity which accrues an enormous database of information on  people from using that information as a weapon against people?  

We have to recognize further that these kinds of rulings affect far more than citizens of the United States.  It affects citizens of countries who utilize the services of these American organizations.  It gives a corporation which is willing to impose its own notion of "the rule of law" (would this be "rule of corporate policy"?) on people who are not in any way affiliated with the corporation.  Perhaps equally evil is the prospect that if anyone who protests a corporations actions is even remotely affiliated with that corporation, they could find themselves fired for activities utterly unrelated to their work.  Consider working for a company that Chevron owns.  It may not be branded as a Chevron company, it may be operating as a wholly owned subsidiary.  An employee of that company could find themselves terminated for "acting against the interests of the company", not because they had taken actions against their direct employer, but rather because they chose to protest the actions of the company that owns their employer - a fact that they may not even have been aware of.  Consider, for a moment, in Canada, the Petro Canada brand is owned and operated by SunCor now.  That isn't apparent from the public branding of the stations, and I would suspect that a lot of employees who work at those stations are unaware of that relationship.

Freedom of speech is a legitimate right.  The question that we now have to start asking is whether we are willing to grant corporations the right to engage in surveillance - either in the present or retroactively.  In the absence of meaningful ways to stay the corporate hand's reach in today's world, I believe that we need to think very carefully before handing over information of any sort to these entities.  More importantly, there is a very real dialogue that must occur as to the extent of the rights and privileges accorded to these entities and how the structures to ensure that they do not overreach should be enacted.

Rising Corporate Feudalism - Policy Versus Law

The story of Carla Cheney has been making the rounds for the last week or so.  The short synopsis is that she was fired from WalMart in Ontario for calling the police about an animal left locked in a closed vehicle.  

Superficially, this is not a particularly big story - she apparently violated company policy regarding how she interacts with customers and got fired for it.  Companies are free to create policy that regulates the actions of their employees - this is neither new nor surprising.  What is interesting is the intersection between the company policy and civil law.

Here we have a situation where public education programs are very clear - if you see an animal in distress, call the police or animal services.  Period.  In Ontario summers, leaving an animal locked in a car is leaving the animal in distress - heat and humidity in a closed car is an evil combination.  No pet should ever be subjected to those conditions.  Even leaving windows partially open is highly debatable.

WalMart's policy guidelines stipulate that the employee should bring the issue to the attention of a manager and let the manager deal with it.  Superficially, this doesn't sound unreasonable.  Until you realize that a busy manager is going to prioritize an issue like that based on all the other topics they are dealing with at the same time.  Further, we don't know if the rest of corporate policy enables the manager to act in accordance with local law, or if the manager is explicitly or implicitly discouraged from engaging law enforcement in such situations.

What is interesting here is that the corporation has a policy which essentially appears to overlap with existing civil law.  Were I, as a private citizen, to make the same phone call that Ms. Cheney did, WalMart would be unable to do anything about it.  However, in the context of the situation, WalMart saw fit to terminate her employment for "violating company policy".  This creates a situation where in some very fundamental respects, the corporation has placed its own internal "laws" (policies) above those of the state.  Further, they have also exacted a surprisingly harsh penalty for violating those policies - certainly one that far exceeds the penalties which would be applied to the animal's owner, for example.

This creates precisely the environment which I have been critical of in other posts on this blog - namely one of corporate feudalism.  As long as you abide by the rules of the corporation, you can get away with just about anything you like - at the price of sacrificing personal ethics as well as potentially ignoring local laws.

The same issue had started to emerge in the 1990s in the form of "whistleblower" issues.  People who found themselves observing wrongdoing within the walls of a corporation had no avenue to safely call out those actions without being terminated.  This provoked an attempt to solve the problem in the form of "whistleblower" legislation in a number of jurisdictions, but ultimately has not been adequately resolved.  Employees within a corporation are still held to a code of silence when their corporation acts maliciously.  This is little different to the oath of fealty that a feudal lord would demand of his followers - it acts in many respects as a law above the law which limits the ability of the individual to challenge that which they see as wrong.  Corporate policy, especially in multi-national entities has become a law above the law - used as an instrument to limit individuals' ability to do the right thing for fear of serious economic consequences.

If calling the police because you see an animal in distress is an offence that gets you fired, one can imagine that were Ms. Cheney to be witness to more serious fraud within the company that she could be subject to severe sanction within the company should she take the story outside of the company.

While I can respect the fact that companies, like individuals, have a right to protect themselves from unjust and inappropriate accusations.  However, I do have a huge problem with corporations creating policies which essentially place them above local laws.  When those systems become such that the individuals within a corporation are threatened with consequences should they step outside of them, even when they have witnessed the violation of laws.

When such threats exist, implicitly or explicitly, we have a situation where one agency is acting in a manner that is explicitly hostile to the rule of law as currently understood and is in fact creating a second set of rules which not only binds the individuals involved, but subverts the purpose of civil and criminal law in the first place.  That binding is one more step in the creation of a feudalism which is hostile to the individual and their freedom.

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.

Labour Exploitation In The Knowledge Economy

The basis of the economy has changed over the last fifty years, and with it has come a change in how companies operate.  Arising from these changes is a new form of exploitation that affects workers at all levels.

Through the industrial revolution, we moved from artisan labour producing most products to an environment of mass production.  Artisans became factory workers, and when the predations of employers became too much, organized into labour unions to have the collective strength to fight back and gain better treatment for workers.  (This is a bit of an oversimplification, but for the purposes of this essay, it sets out the basis from which I will be building an analysis of today's issues)

Since sometime in the 1980s (especially in the wake of Thatcher's efforts in the UK), Neo-Conservatives around the world have been working actively to weaken the power of the trade unions.  This has resulted more recently in so-called "right to work" laws in the United States.  Laws which clearly undermine the effectiveness of unions and collective bargaining.  Superficially, these laws only appear to affect traditionally organized labour groups - manufacturing, government services and so on.

However, that is far from the full picture.  In fact, it is miles from it.  Conservatives have spent a great deal of time in the last forty years painting unions as slothful, entitled and wasteful in their efforts to undermine them.  The net effect has become that the balance of power has once again shifted heavily in favour of the employers.  Many unionized labourers find that their unions are of limited help when it comes to addressing grievances related to working conditions, pay or other workplace issues.  Contractual negotiations have turned again to a situation where the employer is dictating terms to the unions and so on.  In Alberta, for example, the government has just legislated the "agreement" with teachers in the province without actually negotiating with the ATA and other related bodies.  This is not an agreement, it is something else entirely.  Whether the ATA and its members agree with the imposed settlement is moot.

Now, as we turn from the labour economy to the so-called information economy, we find a new problem arising - and it is an ugly one indeed.  Knowledge workers, whether in IT or other domains, are highly skilled, highly intelligent people with extensive backgrounds in a myriad of areas.  They often hold advanced degrees as well as professional certification as engineers.  These people are used to being treated similarly to other professionals such as lawyers or doctors.

Unfortunately, the world has been changing dramatically since the early 1990s.  First of all, the rise of the multi-national corporation has begun to present a serious challenge.  Most countries have some kinds of laws which regulate corporate activities and place boundaries around them to some extent or another.  These laws are not, however, consistent across nations.  So, Canada has one set of laws, the United States another, and India another set of laws entirely.

When corporations have become so large as to span many nations, they become a law unto themselves at the moment.  If they don't like the conditions in one country, they simply move the bulk of their operations to another country where it is more favourable.  More favourable could mean anything from cheaper labour to fewer restrictions on how business is conducted or lower taxes.

The problem for Knowledge Workers has become one where their skills are emerging in more and more markets.  IT skills have become "commonplace" in the minds of many employers, with the consequence becoming that suddenly the notion of hiring skills locally has been replaced by "offshoring" - hiring expertise from India or some other country where "you can hire 10 programmers for the cost of one in North America".

The same thing is emerging in other "knowledge" domains such as engineering.  Building bridges is rapidly becoming something which is done "offshore", with only local labour being used for final assembly.  The design can be exported to an engineering firm in India, the manufacture of segments could happen elsewhere in the world.  As we found with the Temporary Foreign Worker program recently, this can result in local talent being shut out of the work simply because they are deemed (arbitrarily) more expensive.  In the case of the TFW program, Canadians are being obliged to train their replacements in how to do their jobs which will then be shipped off to another country.

What does all this suggest?  First, we have to recognize that money is fundamentally psychopathic.  It has no moral or ethical framework which bounds it.  Only individuals can bound money with ethical and moral considerations.  As corporations grow, they eventually expand to a point where decision making at the top is only bounded by profit considerations.  The impact on people becomes a secondary consideration.

As an example, when a company I used to work for moved to new facilities in the 1990s, the company was comparatively small.  A lot of decisions were made in terms of working environment that specifically accounted for the needs of the staff, and respected the input received from the staff.  More recently, I have heard that the same firm is moving into new facilities.  However, it is now part of a much larger multinational entity.  The new facilities are designed around minimizing the costs of office space per employee.  In fact, staff weren't even consulted about the working arrangements during the planning process.  The message?  Staff don't matter - even specialized knowledge is deemed to be replaceable by cheaper labour abroad if necessary.

The upshot is that there is nothing that obliges a company to utilize local talent in the course of business.  In fact, because the multinational company is able to sidestep local labour laws and suchlike, they can move business wherever they see maximum profit.

Because professional workers are not accustomed to having the "weaker hand" in negotiating with employers, they are only just beginning to recognize what is happening to them.  It used to be that having significant skills and depth of knowledge was a significant bargaining lever.  It still is, except that for a lot of knowledge domains, the competitor isn't down the street, but halfway around the world living in dramatically different circumstances.

What is happening is a two-ended exploitation.  Knowledge workers are being pressured to do more work for less money and in ever deteriorating conditions on one side of the equation, and on the "receiving side" of the offshoring discussions, the workers are being exploited with lower wages and no doubt poor working conditions as well.

The problem really boils down to there being a lack of effective tools for restricting the money-centered predations of large companies.  Local unions have limited leverage simply because much of the work can be moved elsewhere so easily, and the fact that work can be moved around with such minimal consequences for the employer further compounds matters.

I do not know how long it will take for knowledge workers to begin to recognize the degree of exploitation that they are currently experiencing.  I do know that the recognition of that exploitation is emerging and it will take some significant organization and change in the world in order to overcome this.  It will take more than just a trade union like construct to start to change this.

A part of the solution may well involve some kind of international union construct.  Another part will be the creation of a form of legal and regulatory environment that overcomes the ability of a multi-national company to sidestep local labour laws by shuffling the deck of cards as they are currently able to do.

The construct of corporate boards to oversee and guide the management of a corporation is no longer an effective tool in managing large organizations.  They are too far removed from the local consequences of their decisions to understand those effects on people and regions.  The construct of the board has become a means for the elites to communicate and share information, rather than a means of guiding a company with respect to ethical considerations.   This too may yet need to change in order to balance off the otherwise predatory nature of a company's desire to acquire more wealth.

In essence, we need to reinvent the notion of capitalism so that it works at a global scale, and the relationship between capitalism and labour must also be revisited.  Corporate accountability at the level of the nation-state is far too easily sidestepped.