Increases in corporate taxes hurt people and not “faceless corporations,” according to a commentary published by the Fraser Institute Thursday.
In the commentary, author Philip Cross, former chief economic analyst for Statistics Canada, said it is commonly believed that when governments increase taxes for corporations, it is a painless way to balance their budgets. However, he argues, corporate tax hikes lead to higher prices for consumers, lower pay for employees and increased taxes for investors.
“Politicians want to insulate voters from higher taxes by raising corporate rates, but this often results in ordinary workers losing income or everyday consumers paying higher prices,” Cross said.
Cross said there are many reasons why government needs to reduce its reliance on corporate taxes. For every percentage-point increase in corporate tax rates results in an erosion of the tax base, he said.
Corporate taxes should be kept as low as possible, he argues in his commentary, saying this is needed to minimize the “distorting impact” these taxes have on economic behaviour. He gave the example of corporations being encouraged to finance using debt instead of equity due to the fact that interest payments are tax deductible, resulting in decreased investments and ultimately affects productivity, the ability to compete and wages.
The biggest impediment to changing the status quo, Cross said, is public perception that since corporations are entities that only exist on paper, increasing their taxes has no effect on individuals.
