Corporate tax rates and rhetoric / by Simmon Li

I just read an article that repeats the same kind of logic on corporate tax cuts that I think misses the whole picture. The article, in the business section is (surprise surprise) all for lower corporate tax rates. Let me lay out my position. Yes, our tax rates have to be in the general vicinity of average, but the corporate tax rate (combined, federal + provincial) does not need to be the lowest. All of these articles I read talk about this kind of thing ad nauseum. The argument goes, "Canada's international competitiveness hinges on our combined corporate tax rate!" And thus, they use the jargon like "competitive advantage." Competitive advantage a lower corporate tax rate would be, but it's something that changes so often. A race for the bottom isn't going to make Canada more attractive as a place to run a business. Taxes, when the whole story is taken into account, are only part of the story. Sure the US has the highest tax rate in the world, but they still command a lot of the knowledge and creative work of the world. This is slowly changing, but clearly, the tax rate is only part of the picture.

That is my fundamental issue with articles of this type. They espout a low corporate tax rate as though it will magically result in jobs, growth, and revenue (Laffer curve). However, such things only encourage businesses to invest money. And even then, if your country has fairly poor human and natural capital, there is nothing to invest in. India and China right now are doing very well siphoning a lot of that low value-added work because it's a pure numbers game. High value-added work is not quite so straight-forward.

Let's be honest and stop harping on corporate tax rates as the saviour of our poor economic situation. Yes, they are part of the story, but there's more to the story than tax rates.