[Flash Walken]

Originally Posted by mrkajz44

On the topic of corporate tax rates, most people are unaware of how corporate tax really works and integrates with personal tax.

Essentially, corporate tax rates are lower than personal rates because the profit is taxed once in the corporation, and then taxed again when the money is paid out as a dividend to a person. The combined effect of these taxes roughly equal the amount of tax an individual would pay normally on the business income, if there was no corporation involved.

So there is no real benefit to raising corporate tax in the long run. Once the money is distributed out, the same amount of tax revenue is earned (corporate plus personal). The reason they keep corporate tax rates low is to allow businesses to push more money back into their business, allow faster growth, more jobs, ect.

The problem with this is that it has been proven that these policies do not influence corporations to re-invest those profits.

The issue boils down to this: At a time when Ottawa and many provinces are awash in deficit, should governments invest scarce resources in making life more affordable for families by enhancing social programs or in giving corporations additional tax cuts?

Successive federal governments have chosen the latter path in recent years in a bid to make Canada more competitive and attractive to international investors. In 2000, the combined federal-provincial tax rate was just over 42 per cent, ranking Canada near the top among industrialized nations. The combined rate has since fallen to 28 per cent, placing the country in the middle of the pack, and Conservative Leader Stephen Harper's goal is to reduce it to 25 per cent by fiscal 2013.

Businesses were widely expected to use the extra money from successive rounds of tax cuts to build factories and offices and buy new machinery and equipment. At one time, they did just that. From 1960 until the early 1990s, corporations invested almost every penny of their after-tax cash flow back into the business.

But the tax cuts appear to have reversed decades of tradition. Investment in equipment and machinery has fallen to 5.5 per cent in 2010 as a share of Canada's total economic output from 6.8 per cent in 2005 and 7.7 per cent in 2000, The Globe analysis shows.

http://www.theglobeandmail.com/news/...article575449/

And it happens in diverse localities. Take BC for example:

Of course, the loss of that revenue would be acceptable -- even laudable -- if the foregone receipts were re-invested in British Columbia's economy. They have not, and are not.

Consider that the province's corporate-income tax rate, which stood at 16.5 per cent before the BC Liberals took power in 2001, today is just 10.0 per cent. Profitable corporations, however, pay even less than that.

Falcon's budget shows that corporate profits will surpass $24.7 billion in 2012, yet Victoria's corporate-income tax receipts will come in at less than $2.3 billion -- or a mere 9.1 per cent of profits.

Next year, in 2013, profits are expected to rise to $25.8 billion, but the province's take will drop to 7.9 per cent.

(And, of course, the corporation capital tax -- the means by which enormously profitable financial institutions paid modest sums to the provincial treasury -- was abolished by the BC Liberals in 2009.)

Have businesses re-invested their tax-savings in British Columbia?

No. In fact, capital investment in machinery and equipment -- a key indicator of business confidence -- has plunged over the last decade, dropping to just 5.3 per cent of nominal GDP in 2010 from almost seven per cent in 2001.