Editorial: Time to cancel corporate tax holidays

The proliferation of corporate tax holidays is hollowing out tax bases all over the world.

The result: accelerated erosion of the fiscal and economic foundations of communities where those companies are based and the deepening of the income inequality divide.

Neither is good for business.

According to Oxfam’s recently released Broken at the Top report, multinational corporations’ tax dodging costs the United States an estimated US$111 billion per year.

Those billions are being siphoned off through offshore and other “profit-shifting” tax dodges and away from needed investment in local infrastructure, education and health care. Impoverishing local economies to maximize bottom-line returns for investors is short-sighted in the long term.

Arguments for tax havens are many. Some economists maintain that they provide competition for jurisdictions whose governments burden business with overly heavy tax loads. Lower corporate taxes would, they say, help slow the flow of business wealth out of communities and into pockets of the super-rich, the upper 1% of whom now have accumulated the same wealth as the 3.6 billion people at the bottom of the wealth pyramid.

But merely lowering corporate taxes will not stem that outgoing tide.

Not all tax havens are in sunny tropical backwaters.

As Nicholas Shaxson, author of Treasure Islands: Uncovering the Damage of Offshore Banking and Tax Havens, has pointed out, the United States and Britain are among the world’s largest tax havens.

There is more, therefore, to the equation than competitive tax regimes. The proliferation of special-interest exemptions and loopholes makes documents like Canada’s Income Tax Act increasingly onerous and complex for business and all other taxpayers. The Fraser Institute estimates that the text area occupied by the country’s Income Tax Act increased 62% between 1990 and 2014.

What’s also needed here then is the political will to close loopholes to tax inequities, simplify tax legislation and establish laws that will effectively police those rules and punish companies and individuals who evade taxes.