Wednesday, August 19, 2009

"Why the small business tax must stay"

Jack Mintz in his article at Full Comment applauds the NDP for not bringing a resolution to eliminate small business taxes to the conference floor. He goes so far to state:

So give the NDP credit. At its recent national convention, the NDP smartly refused to consider eliminating corporate taxes on small businesses by not bringing the resolution to the floor. The delegates got it right, since this destructive policy not only leads to tax avoidance by many high-income taxpayers but also fails to generate growth. Those pushing to eliminate small business taxation altogether, among them Manitoba’s NDP government, should think more carefully about this non-virtuous tax policy.

The unfortunate thing is the Mr. Mintz entirely attributes the wrong idea of why the NDP delegates chose not even to consider this resolution - that the policy is destructive and fails to generate growth. In actuality, the delegates didn't bring the resolution to the floor because they are anti-growth and anti-corporation of any size. To put it another way, they are against doing anything to help businesses of any size, believing instead that the government or the workers should be the ones to control the business.

He then shows that he hasn't been in business for himself by not understanding the benefits of a reduced tax rate on any corporation.

Notwithstanding the fact that there are studies showing that as corporate tax rates decrease, payrolls and averages wages increase. Notwithstanding that as corporate taxes decrease, both as a marginal rate and as an absolute rate, the ability of the corporation to repay it's obligations increases given an equivalent revenue level between the two scenarios. Given the ability to split income between family members and an ability to smooth income over time in order to maximize money left within a corporate structure to invest in further capital and expansion.

These are all attributes to a small business corporate tax rate which help to fuel job growth, and indeed growth in small business as a whole. What Mr. Mintz misses is that a small business corporate tax rate isn't ONLY to fuel job growth, but to fuel ECONOMIC GROWTH, and to fuel PRODUCTIVITY GROWTH, things which don't necessarily increase payroll numbers. Mr. Mintz cites that only 12% of small businesses increase their payrolls after incorporating, however he misses the statistic that small businesses make up 85% of the economy and it's economic growth.

I do agree with one thing that Mr. Mintz says though - all corporations should pay a low tax rate, possibly as low as the 16% combined rate he cites as the average rate across Canada. By doing so, Canada would become a low tax haven and attract corporate headquarters from many other countries, including the United States which would fuel economic growth for years to come.

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