An NDP plan to slash corporate tax rates?

quote:

---

Originally posted by unionist:
[QB]
I wouldn't have them pay one single penny on wealth which is productively invested. The minute they cash out and make gains, or earn a dividend, however, they will pay until it hurts. Lovely, isn't it?

---

This is a very bad idea for many reasons. Here's one of the blunter ones:

1) Imagine an over-simplified economy with one capitalist investor in a large corporation that owns half the nations industry and capital and the other half owned in some way by the remainder of the population. Imagine also that the corporation is profitable making billions of dollars a year. Under the system you proposed, the capitalist could take out tens of millions a year for his own consumption, the fanciest cars, new houses, $150,000 in clothes for politicians he supports, etc, and it will, essentially, have no impact on the billions of dollars of profits that the company has. These billions he choses to keep in the company, where they are untaxed, and can be used to buy up further capital. The net result is that the capitalist increases his control over and ownership of the economy, and that all of his wealth that really matters remains untaxed.

[ 29 October 2008: Message edited by: PB66 ]

Same thing for the possibility that foreign corporations game the system so that they have Canadian companies where they pay no corporate taxes, and patriate the profits/capital gains to jurisdictions where the latter have low rates. Result: Canada does not get the higher income taxes that were to compensate for the elimination of corporate taxes.

Where and how frequently does this actually happen? Foreign corporations with deep enough pockets to buy or start up in Canada are themselves diversely held: the owners are taxed under a myriad of jurisdictions.

In the real world there are no closely held holding corporations that can buy up profitable operations in Canada, and patriate the profits in the Cayman Islands.

Not to mention that in practice, when foreign corporations buy Canadian companies they do so primarily with stock swaps- the end result of which is that dividends and capital gains are paid in the same jurisdictions as they were before the sale.

In the aftermath of such a merger, for tax reasons a lot of the Canadian stockholders begin selling off the stock of what is now a foreign corporation. But then we are talking about aggregate effects- and I've yet to see anyone here point to evidence that lowered corporate taxes leads to significantly greater patriation of dividends or capital gains in other low tax jurisdictions.

[ 29 October 2008: Message edited by: KenS ]

quote:

---

In the real world there are no closely held holding corporations that can buy up profitable operations in Canada, and patriate the profits in the Cayman Islands.

---

This is an interesting strawman. Who's scenario is this?

"Corporations should not be taxed" is most certainly a truism of the corporatist consensus.

quote:

---

Originally posted by PB66:
[b]1) Imagine an over-simplified economy with one capitalist investor in a large corporation that owns half the nations industry and capital and the other half owned in some way by the remainder of the population. Imagine also that the corporation is profitable making billions of dollars a year. Under the system you proposed, the capitalist could take out tens of millions a year for his own consumption, the fanciest cars, new houses, $150,000 in clothes for politicians he supports, etc, and it will, essentially, have no impact on the billions of dollars of profits that the company has. These billions he choses to keep in the company, where they are untaxed, and can be used to buy up further capital. The net result is that the capitalist increases his control over and ownership of the economy, and that all of his wealth that really matters remains untaxed.[/b]

---

Not sure you understood my proposal. This high-living big spender will have well over 90% of his "tens of millions" confiscated by the state as personal income tax, under my item #2.

Secondly, the "billions" that remain invested in his corporation will fritter away and die unless they are invested in production of wealth. That's as true tomorrow as it is today. That means salaries, which are taxed (at far lower rates of course), and it means growth of the GDP.

If you're suggesting that somehow this megacapitalist will just pay himself and "sit" on his money, not producing, not hiring, etc. - just buying and selling other companies (which presumably are doing the same nothing, as per your scenario) - well, that silly nightmare scenario is just as theoretically conceivable today as it would be under the Orange Shift™.

Corporate income tax is levied only on corporate profits. If the corporation isn't making profit (which it couldn't possibly, in your scenario), there would be no tax either under the status quo, or under the Orange Shift™. So please repeat your point again.

quote:

---

Originally posted by KenS:
[b]Same thing for the possibility that foreign corporations game the system so that they have Canadian companies where they pay no corporate taxes, and patriate the profits/capital gains to jurisdictions where the latter have low rates. Result: Canada does not get the higher income taxes that were to compensate for the elimination of corporate taxes.[/b]

---

I agree with the thrust of your posts, Ken, but I just wanted to point out again that the "foreign owners" argument being used against the Orange Shift™ takes no account of item #4, which would restrict, tax, or prohibit the outflow of profit/capital, as the case may be. Clearly, the proposal could be jeopardized in the absence of item #4, even though I agree with you that the nightmare scenarios being presented are largely just that.

quote:

---

Originally posted by Lard Tunderin' Jeezus:
[b]Much of the corporate elite lives the good life without often touching their own funds. Most anything can be expensed to the shareholder under the right circumstance.[/b]

---

You mean expensed to the corporation, no?

If it's an expense legitimately related to the corporate executive's work, it won't be taxable today or under the Orange Shift™. If it's fraudulent, it will be prosecuted. And we're talking about an NDP government which owes nothing to the corporate elite, aren't we?

As for the shareholders, they will be paying far more taxes than today (see item #3).

quote:

---

George, I am no pollyanna believer in the "bedrock dependability" of anything in a capitalist economy (or in life in general). I know you want workers to get more involved in the fate of their companies and in the market. Maybe you have a point, but I'd prefer the debate in this thread to be on the narrower subject raised in the Orange Shift™.

---

Can't imagine more arrow-like input in a thread concerning the fate of corporations than to observe that a great many people working for corporations might want to, like yourself, "incorporate" [img]smile.gif" border="0[/img] these concerns for their golden years. That is, unless you are only into creating models without concern for their political implementation

As well, I don't believe we should be bound too tightly to existing treaties and agreements - the U.S. has demonstrated how to abrogate huge sections of NAFTA - while realizing that Steve is going to try some very dumb things at Bretton Woods #2.

That will perhaps provide the parliamentary opportunity to say no and test the circulating theories about what the "progressive" forces representing two-thirds of the voting electorate (three-quarters of the eligible?) might bring themselves to do.

One thing - we must inject environmental purpose to anything done regarding our production facilities at home and abroad (corporations). And we must demand real support for all of those who have slipped through or are about to tumble towards a pathetic "social safety net". There is nothing safe about it.

If you talk only in economic terms, you are simply bound by the conventions of the past, the babble of failed economists and their fairyland models.

What opportunities afforded by the collapse of a system!

[ 29 October 2008: Message edited by: George Victor ]

That's quite a copout LTJ.

You or someone else ought to be able to point to some kind of aggregate evidence to back up your objections. It ain't rocket sceince.

As to the soliloquoy from Revenue Canada, there is this:

quote:

---

The combination of Canada’s tax exemption for foreign affiliate exempt surplus dividends, and the deductibility of interest expense on borrowed money used to acquire shares, thus creates a mismatch between income and expenses.

This mismatch offers distinct tax planning opportunities for multinational corporations. There has for many years been a question in tax policy circles as to the extent to which those opportunities are a legitimate and even necessary part of Canada’s international competitiveness, and the extent to which they are an invitation to tax avoidance.

That question has no simple answer. Many would agree, though, that some of the tax planning structures that have been developed in response to Canada’s international tax rules are inappropriate.

---

I do know some people who use these manouvers- even if I don't know entirely how it works. We are talking wealthy people's fun and games here, but not the world of high finance, let alone mutinational corporations.

The document does go on to give a couple secenarios of how the rules CAN be gamed even by larger multinationals.

They make absolutely no comment on how frequently this might happen.

Nor do they point out that [i]every single[/i] [b]overall[/b] tax regime you set up creates opportunities for gaming that will be exploited to the disadvantage of the host coutries' taxation revenues.

This would be true as well for RAISING corporate taxes while leaving other taxes constant.

quote:

---

Originally posted by unionist:
[b]
As for the shareholders, they will be paying far more taxes than today (see item #3).[/b]

---

Does your pension fund pay those same taxes as a shareholder?

Translation: Please don't interrupt our mental masturbation.

quote:

---

A 2004 U.S. Government Accountability Office (GAO) study found that [b] 61% of American corporations, including 39% of large companies, paid no corporate income taxes between 1996 and 2000. Last year, corporations shouldered just 14.4% of the total U.S. tax burden, compared with about 50% in 1940.[/b]

While companies are getting off easy, thanks to loopholes, ordinary wage earners are getting stuck with the tab. The tax burden on individuals is expected to climb from $1.16 trillion in 2007 to $1.21 trillion this year, according to the Congressional Budget Office (CBO), while corporate tax receipts are expected to decline from $370 billion to $364 billion. By 2013, the CBO estimates, ordinary taxpayers’ bills may climb to $1.86 trillion while corporate tax bills drop to $327 billion.

One strategy of corporations is to create “shell companies” in places like Bermuda, Gibraltar (Orange Shift CANADA?) and the Caribbean to avoid federal taxes. Corporations [b]“set up an offshore division that has nothing more than a post office box,”[/b] says Rep. Richard
E. Neal (D., Mass.), the chairman of a House subcommittee probing tax breaks. Experts estimate that the U.S. Treasury may be losing up to $100 billion a year due to shell corporations.

---

quote:

---

Translation: Please don't interrupt our mental masturbation.

---

Cogitatin's tough work in a cynical atmosphere, LTJ, but someone's gotta do it. [img]wink.gif" border="0[/img]

I find it a wonderful, refreshing change from sniping at power out of the shadows. Just think of it as a revolutionary opportunity. There's only the Earth at stake. [img]frown.gif" border="0[/img]

quote:

---

Originally posted by 1948:
[b]Legitimate points, but the counterargument would be that, unless we're ready to nationalize industry, we need to encourage corporations to create jobs.

I think the NDP argued, quite effectively, that this could be done by building infrastructure, providing direct incentives, investing in training, and having a decent healthcare system.

Nonetheless, many voters felt we were putting the economy at risk. It's east to argue they were misled by the Lib/Tory/corporate media but that doesn't solve the problem.[/b]

---

and good points back. [img]wink.gif" border="0[/img] Tax policy should be tied in to other policy, fiscal monetary, economic development,education, industrial strategy.environmental social,community and regional development etc.. If we want to develop say. a green and prosperous and fair Canada with a high tech information based economy, government and tax policy will be key. Corporations have no vested industry in job creation, equality, justice or in much beyond maximizing profit.Governments may not control but can shape.

quote:

---

Originally posted by unionist:
[b] Corporations pay 38%, whether they're nice or nasty.[/b]

---

Where in the world did you get that figure from? And who enforces this rate?

According to [url=http://www.cdhowe.org/pdf/ebrief_63.pdf]C.D. Howe Inst.(pdf)[/url] Canada's marginal effective tax rate on capital is 29.1 percent, eleventh highest among 80 countries with a weighted average of 28.7 percent. For manufacturing in Canada, it's 19.3 percent. Latvia, Kenya, and a few more developing world economies have even lower rates. Is Canada's a developing world economy? Do we aspire to be more competitive like the U.S. as they scoop up controlling interest in everything from Canaidan energy to raw materials and manufacturing while our productivity gap becomes a canyon? Or do we only want to copy Scandinavian corporate tax rates and little else which makes those economies as competitive as they are?

quote:

---

[b]God. And in her absence, the courts.[/b]

---

How can they do it today though when Revenue Canada is understaffed and schemes for offshore tax avoidance shelters growing more complex than federal tax auditors are able to keep track of? Ever hear of deferred and unpaid corporate income taxes? According to Linda McQuaig's book, Shooting the Hippo, it represented a significant percentage of Canada's debt growth during the neoliberal years. We need real leadership and to put an end to the cult of impotence in Ottawa. And investigative news journalist in the U.S., David Kay Johnson, told Forbes magazine that the superrich in the U.S. don't nearly pay what they are legally obligated to.

[ 29 October 2008: Message edited by: Fidel ]

Can someone tell me why this is still being argued.

I've seen no explanation of how this would be beneficial to anyone (or at least no attempt to refute the point by Bank-of-Sweden-in-honour-of-Alfred-Nobel prize winner Paul Krugman that corporate income taxes seem to have no relation to growth or jobs).

I've seen no response to my previous point that this would allow capitalists to increase their accumulation of capital. (Their corporations can reinvest more of their newly untaxed profits into accumulating additional capital. Since the capitalists have little need for the money for consumption, they only need to receive a small portion of the profits as dividends or capital gains, so most of their additional wealth from the untaxed corporate profits will not be taxable as personal income.)

This plan seems to offer nothing for the economy and increased concentration of wealth. What was meant to be the point?

quote:

---

Unionist thinks the vast pools of cash and other wealth held by corporations, from which they derive their enormous power and influence over the economy and society, should go untaxed.

---

I don't know of too many corporations with 'vast pools of cash', that would be an enormous waste of resources to have that money doing nothing. I am aware though of corporations with vast 'pools' of capital in the form of machinery, labor and land.

I will concede of course that corporations do spend their money on lobbying politicians and the public in ways that I, and I'm sure pretty much everybody here often don't like. One of those ways is to form 'think tanks'. Since I like this idea of shifting income taxes on corporations onto dividends and capital gains I hope it doesn't kill it to point out that I believe the idea originated from Michael Walker, the founder of the Fraser Institute. Oh well, even a stopped watch is correct twice a day.

quote:

---

Corporations pay salaries to employees, and deduct that expense from their income for tax purposes. Do you think your corporate boss would be as willing to give you a $1,000 raise if the money were not tax deductible?

---

This might be a valid point, however it doesn't really make sense to me that a company would be willing to pay $1,000 in salary just to reduce their taxes by around $250.

quote:

---

Moreover, abolishing corporate tax would in effect make corporations into tax shelters for the rich, like a giant RRSP, where they could park their capital and accumulate surplus value without having to share with the government, until they take their dividends out.

---

Yes, that's the whole idea. Companies that reinvest their earnings so as to grow and hire more employees...

quote:

---

Corporate entities would pop up everywhere; people would create corporations just to hold their money and keep it from the taxperson. Every home, automobile, and yacht would be owned by a corporation, and purchased with before-tax money. Instead of paying for your kids' university tuition, you could have the family corporation award them scholarships.

---

Given that the top corporate tax rate is already lower than the top rate of income taxes, companies already have an incentive to do this, and it is already quite illegal. The government would just do what it already does: deem the spending to be to the personal benefit of the person receiving it and tax it at the top rate the person is paying.

Orange shift!