Connect with us

Business

Cut Corporate Income Taxes massively to increase growth, prosperity

Published

4 minute read

From the Frontier Centre for Public Policy

By Ian Madsen

The federal Liberal government’s current budget proposal to increase the inclusion rate for capital gains tax was met with justifiable criticism and opposition – primarily from business groups.  There is another corporate income tax increase looming.  A 2018 corporate tax reduction, intended to make Canada less uncompetitive versus the 2017-enacted tax reform and cut in the United States (which came into effect fully in 2018), is set to expire starting this year.

According to a study by University of Calgary’s School of Public Policy’s Trevor Tombe, Canada’s corporate income tax rate on new investments will jump from 13.7% to 17% by 2027. Even worse, for Canada’s high-value-added manufacturing sector, taxation will triple.  For a nation that is having a hard time, encouraging both domestic or foreign investors to invest in new plant, equipment and related goods and services, to reverse meagre productivity growth – as noted by the Bank of Canada – this development is beyond questionable.

This rise will hinder future improvement in incomes and the standard of living – making it a serious issue.  It should be obvious to policymakers that increasing income tax on businesses and investment should be avoided.  The legislation to make the 2018 provisions permanent is, alarmingly, not urgent to politicians seeking to appease certain types of class warfare-cheering voters.

There is at least one policy that could make Canada more attractive to business, investors, and hard-pressed ordinary citizens.  It would be, dramatically and substantially, slash corporate income taxes  – plus make paying taxes easier, as Magna Corporation founder Frank Stronach has suggested.  It may surprise some Canadians, but, Ottawa’s take from corporate income taxes is a relatively small, but fast rising proportion of  federal overall revenue: 21%, in fiscal 2022-23, according to Ottawa, up from 13% in fiscal 2000-21 notes the OECD.

This may seem ‘just fine’: let companies pay the taxes and reduce the tax burden on ordinary people.  However, what actually happens is that every corporate expense, including taxes, reduces cash flow.  The money remaining could either be reinvested or paid out as dividends to owners. A reminder: owners are founding families; pension fund beneficiaries (employees, citizens); and ordinary individuals.

As to reinvesting available funds, the less there are, the less capital investment can occur. Investment is required to replace existing equipment, or add new equipment, devices, software and vehicles for businesses.  This not only keeps companies competitive, but also makes employees more productive.  This, in turn, makes the whole economy more profitable, thereby increasing taxes paid to governments.

As for the dubious reason for the tax hike, gaining more revenue – recent experience in the United States is instructive.  The 2017 Tax Cut and Jobs Act reduced corporate income tax from 39% of pre-tax income to 21%.  The result:  U.S. federal corporate income tax revenue rose 25% from 2017 to fiscal 2021.  Capital investment rose dramatically too, by 20%, a key goal of many Canadian policymakers.

Taxes should be cut, enabling productivity improvement and bringing a future prosperity that we all yearn for.  It would also keep us internationally competitive.  We are currently mediocre, being around a 25% rate (OECD).

Canada has a hard time attracting investors. Now, our trading partners are leaving us in the dust.

Ian Madsen is the Senior Policy Analyst at the Frontier Centre for Public Policy

Todayville is a digital media and technology company. We profile unique stories and events in our community. Register and promote your community event for free.

Follow Author

Automotive

US EV Industry Shifts Back Into Reality Gear

Published on

From the Daily Caller News Foundation

By DAVID BLACKMON

 

At the start of each year, I write a piece in which I make a set of predictions about what will happen in the energy space during the coming 12 months. One prediction I made in this year’s story focused on the likelihood of a big fallout in America’s EV manufacturing industry.

Citing Fisker and Rivian as examples, I questioned whether any of the pure-play electric vehicle companies based in the United States had the ability to compete with Tesla in that market.

I took some heat from viewers that same week after I predicted on a podcast that every one of the U.S. pure-play EV makers besides Tesla would be either in bankruptcy or teetering on the brink by the end of 2024. As things are turning out, my only regret there is that I did not predict they would all be in that state by the middle of 2024 instead of the end of the year.

This week, Fisker filed for bankruptcy, becoming the latest in a series of casualties in the growing falling-out in the EV sector. As The New York Times noted in its story on the matter, Fisker was one of a number of pure-play EV makers who were able to raise billions in startup funds from investors who got caught up in the EV frenzy during 2020 and 2021.

Several of those firms, like ProterraArrival, and Lordstown Motors already preceded Fisker down the bankruptcy path. Others, like Rivian, are right on the verge of taking the same plunge.

Lucid makes just one model, a luxury sedan, and is struggling to find buyers. It boasted about setting a new delivery “record” in the first quarter of this year, but a closer search reveals that was for only 1,967 units. The carmaker followed that announcement with another in May that it would lay off 400 employees in an apparent effort to conserve cash.

Oof.

EV truck maker Nikola, meanwhile, saw its stock price hit a record low this week amid ongoing softening in the US EV market. At the close of June 20 trading, Nikola’s price had dropped to just 33 cents per share. The stock collapse comes months after the company had delivered its first hydrogen fuel cell heavy truck during Q1, but that amounted to sales of just 42 units.

These and other pure-play EV makers are not in any way serious competition for Tesla.

Note also that Tesla is having major struggles of its own as the pace of EV adoption growth slows to a snail’s pace. The company laid off 10% of its workforce in May amid the ongoing slowing of the EV market. Tesla’s rollout of its radically designed Cybertruck has been plagued by recalls, technical issues and customer complaints, and the company’s overall Q1 2024 sales numbers fell dramatically from both Q4’s numbers and year-over-year.

But its decade-long head start on the competition, vertical integration of supply chains and diversification into other ventures give Tesla advantages these other pure-play EV companies do not and cannot enjoy. It remains uniquely situated among its peer group to survive the market contraction.

Traditional automakers like Ford and GM have been able to placate investors about their stunning losses in EV ventures (Ford somehow managed to lose $132,000 per unit sold in Q1 2024) by offsetting them against major profits from their traditional gas and diesel-powered car divisions. But even those companies have invoked an array of strategic shifts over the past six months in which they have delayed or cancelled planned new investments in their EV dreams.

What we are seeing here is a rapid shifting back to reality in the US auto industry. EVs always have been, are today, and will remain a niche product that can fill specific needs for a limited segment of our population, mainly the wealthy. The reason why the traditional, gas-and-diesel-powered auto segments at companies like Ford and GM remain wildly profitable is because that is where the real auto market remains.

No amount of Soviet-style central planning, industrial policy and command-and-control edicts and regulations coming down from Washington, D.C., are going to change that reality.

David Blackmon is an energy writer and consultant based in Texas. He spent 40 years in the oil and gas business, where he specialized in public policy and communications.

The views and opinions expressed in this commentary are those of the author and do not reflect the official position of the Daily Caller News Foundation.

Featured image screenshot: (Screen Capture/PBS NewsHour)

Continue Reading

Automotive

Government subsidies cost more than EV capital investments

Published on

From the Canadian Taxpayers Federation

Author: Franco Terrazzano

The Canadian Taxpayers Federation is calling for an end to corporate welfare following today’s Parliamentary Budget Officer report showing government subsidies are 14 per cent more than the capital investments corporations are making in the electric-vehicle supply chain.

“Putting taxpayers on the hook for more money than these corporations are spending to build their own factories is an awful deal for ordinary Canadians,” said Franco Terrazzano, CTF Federal Director. “Taxpayers are being taken to the cleaners with this EV corporate welfare.”

The PBO released a report regarding recent government subsidies for EV factories.

“For the $46.1 billion in investments (capital expenses) across the EV supply chain, PBO estimates total corresponding government support (for capital and operating expenses) to be up to $52.5 billion, which is $6.3 billion (14 per cent) higher than announced investments,” according to the PBO report.

Of the $52.5 billion in taxpayer subsidies, the PBO estimates $31.4 billion is coming from the federal government and $21.1 billion is coming from provincial governments.

“These lopsided numbers show that these corporate handouts are nothing more than a vanity project for politicians,” said Jay Goldberg, CTF Ontario Director. “If these politicians want to grow the economy, they should cut taxes and red tape rather than make bad bets with taxpayers’ money.”

Continue Reading

Trending

X