Uncompetitive corporate tax rates deter business investment and encourage firms to relocate elsewhere
News that Burger King and Tim Horton’s are merging and that the new company will be headquartered in Canada has taken the business and political world by storm.
U.S. politicians and left-of-centre groups denounced the transaction as “tax dodging” and warned of a public backlash against the well-known burger chain. Canadian politicians have refrained from saying much about the deal but spoke positively about the country’s corporate tax regime. What are we to make of this late-summer kerfuffle?
Politicians are talking about taxes because taxes are at the heart of this deal (although other factors are also at play). It’s called a “tax inversion” whereby an American company merges with a foreign one and, in so doing, reincorporates abroad to take advantage of lower taxes. It’s a powerful reminder that competitive business taxes matter.
A considerable body of research finds that corporate income tax rates are an important contributor to a jurisdiction’s economic performance. High rates can diminish a jurisdiction’s appeal as a destination for business investment and hurt its ability to compete with others for investment and ultimately job creation.
This is because high taxes change the incentives people face. Higher corporate tax rates decrease the after-tax rate of return that investors receive and thus reduce their incentives to invest and grow, leaving firms with less capital to invest in productivity-enhancing machinery, equipment, and technology. Because productivity is a key driver of wages, lower productivity means that workers ultimately suffer.
And a growing economy characterized by more investment, increased job creation, and higher incomes for workers eventually leads to more government revenue of all types, including personal and corporate income taxes, and sales taxes. In fact, research finds that lower corporate taxes can lead to a growing business tax base – a direct result of how taxes affect incentives and the mobility of capital.
Put differently: when corporate taxes are uncompetitive, the economic costs can mean less investment, fewer jobs, and potentially less government revenue.
Canadian governments of all political stripes got this message loud and clear over THE past two decades. The federal government – starting with the Liberals and followed by the Conservatives – cut the general corporate income tax rate from 28 per cent in 1997 to 15 per cent in 2012. Many provinces – from an NDP government in Saskatchewan to Liberals in B.C. and Progressive Conservatives in Alberta – did so too, although there’s been some backsliding in recent years. As of last year, the average combined (federal and provincial) corporate tax rate is 26.3 per cent, down markedly from 34.2 per cent in 2005.
Canada is hardly unique in this regard. We’ve seen a global trend to lower corporate taxes. Among the most developed countries, the average corporate tax rate in 2013 was 25.5 per cent compared to 28.2 per cent in 2005.
But the United States is an outlier. It continues to impose one of the highest corporate tax rates in the world. The U.S. average federal-state corporate tax rate is 39.1 per cent. Making matters worse, it’s the only G-7 country that taxes a company’s global income regardless of where it’s earned. The new merger and move to Canada means Burger King will no longer be subject to such a rule.
Part of Burger King’s decision to acquire Tim Horton’s and relocate to Canada is undoubtedly our more competitive corporate tax regime. U.S. politicians may lament the company’s northern move but ultimately the responsibility rests with government policy and the inaction in improving American tax competitiveness. The Burger King-Tim Horton’s transaction is a real-life reminder that uncompetitive corporate tax rates can deter business investment and encourage firms to relocate elsewhere.
Despite this, some voices continue to call on Canadian governments to raise corporate tax rates. Apparently “evidence-based” policy doesn’t seem to apply in this case. But ignoring the facts won’t help the Canadian economy. Raising corporate income tax rates isn’t costless. Just ask the Americans.
By Sean Speer and Charles Lammam The Fraser Institute
Sean Speer is the associate director of fiscal studies and Charles Lammam is resident scholar in economic policy at the Fraser Institute.
Viwango vya ushuru wa ushirika visivyo na ushindani vinazuia uwekezaji wa biashara na kuhamasisha makampuni kuhamia mahali pengine Habari kwamba Burger King na Tim Hortons zinaungana na kwamba kampuni mpya itakuwa na makao makuu nchini Canada imechukua ulimwengu wa biashara na kisiasa kwa dhoruba. Wanasiasa wa Marekani na makundi ya kushoto ya katikati yalitalaani shughuli hiyo kama "kuepuka kodi" na kuonya juu ya athari ya umma dhidi ya mlolongo maarufu wa burger. Wanasiasa wa Canada wamezuia kusema mengi juu ya mpango huo lakini walizungumza vyema juu ya mfumo wa kodi ya kampuni ya nchi hiyo. Tunapaswa kufanya nini kuhusu msukosuko huu wa mwishoni mwa kiangazi? Wanasiasa wanazungumza juu ya kodi kwa sababu kodi ziko katikati ya mpango huu (ingawa sababu nyingine pia zinacheza). Inaitwa "kubadilisha kodi" ambapo kampuni ya Marekani huungana na moja ya kigeni na, kwa kufanya hivyo, kuunganisha tena nje ya nchi ili kuchukua faida ya kodi ya chini. Ni kikumbusho chenye nguvu kwamba ushuru wa biashara ya ushindani ni muhimu. Mwili mkubwa wa utafiti hugundua kwamba viwango vya kodi ya mapato ya kampuni ni mchangiaji muhimu kwa utendaji wa kiuchumi wa mamlaka. Viwango vya juu vinaweza kupunguza rufaa ya mamlaka kama marudio ya uwekezaji wa biashara na kuumiza uwezo wake wa kushindana na wengine kwa uwekezaji na hatimaye uundaji wa kazi. Hii ni kwa sababu kodi ya juu hubadilisha motisha watu wanakabiliwa. Viwango vya juu vya kodi ya kampuni hupunguza kiwango cha mapato baada ya kodi ambayo wawekezaji hupokea na hivyo kupunguza motisha zao za kuwekeza na kukua, na kuacha makampuni na mtaji mdogo wa kuwekeza katika mashine, vifaa na teknolojia za kuongeza uzalishaji. Kwa sababu uzalishaji ni kichocheo cha mshahara, uzalishaji wa chini unamaanisha kwamba wafanyakazi hatimaye wanateseka. Na uchumi unaokua unaojulikana kwa uwekezaji zaidi, kuongezeka kwa uundaji wa kazi, na mapato ya juu kwa wafanyakazi hatimaye husababisha mapato ya serikali ya aina zote, ikiwa ni pamoja na kodi ya mapato ya kibinafsi na ya ushirika, na kodi ya mauzo. Kwa kweli, utafiti unaona kwamba kodi ya chini ya kampuni inaweza kusababisha msingi wa kodi ya biashara inayoongezeka - matokeo ya moja kwa moja ya jinsi kodi zinavyoathiri motisha na uhamaji wa mtaji. Kwa maneno mengine, wakati kodi za kampuni hazina ushindani, gharama za kiuchumi zinaweza kumaanisha uwekezaji mdogo, ajira chache, na uwezekano wa mapato ya serikali. Serikali za Canada za mipaka yote ya kisiasa zilipata ujumbe huu kwa sauti kubwa na wazi katika miongo miwili iliyopita. Serikali ya shirikisho - kuanzia na Liberal na kufuatiwa na Conservative - ilipunguza kiwango cha jumla cha kodi ya mapato ya kampuni kutoka asilimia 28 mnamo 1997 hadi asilimia 15 mnamo 2012. Mikoa mingi <unk> kutoka serikali ya NDP huko Saskatchewan hadi Liberal huko B.C. na Progressive Conservatives katika Alberta <unk> alifanya hivyo pia, ingawa kumekuwa na baadhi ya backsliding katika miaka ya hivi karibuni. Kwa mujibu wa takwimu za mwaka jana, kiwango cha kodi ya kampuni (ya shirikisho na ya mkoa) ni 26.3%, chini sana kutoka 34.2% mnamo 2005. Kanada si ya pekee katika jambo hilo. Tumeona mwelekeo wa kimataifa wa kupunguza kodi za mashirika. Katika nchi zilizoendelea zaidi, kiwango cha wastani cha kodi ya kampuni katika 2013 kilikuwa 25.5%, ikilinganishwa na 28.2% katika 2005. Lakini Marekani ni nchi isiyo ya kawaida. Inaendelea kuweka moja ya viwango vya juu zaidi vya kodi ya kampuni ulimwenguni. Kiwango cha wastani cha kodi ya shirikisho na serikali ya Marekani ni 39.1%. Kwa kuongezea, ni nchi pekee ya G7 inayotoa kodi kwa mapato ya kimataifa ya kampuni bila kujali ni wapi ilipata. Muungano mpya na kuhamia Canada ina maana Burger King itakuwa tena kuwa chini ya sheria kama hiyo. Sehemu ya uamuzi wa Burger King wa kupata Tim Horton na kuhamia Canada bila shaka ni mfumo wetu wa ushuru wa ushirika wenye ushindani zaidi. "Wanasiasa wa Marekani wanaweza kulalamika kwa hatua ya kaskazini ya kampuni hiyo, lakini hatimaye jukumu linategemea sera ya serikali na kutofanya kazi katika kuboresha ushindani wa kodi ya Marekani. """ Mkataba wa Burger King-Tim Horton ni ukumbusho wa maisha halisi kwamba viwango vya ushuru wa ushirika visivyo na ushindani vinaweza kuzuia uwekezaji wa biashara na kuhamasisha makampuni kuhamia mahali pengine. Licha ya hili, baadhi ya sauti zinaendelea kuitaka serikali za Canada kuongeza viwango vya kodi ya kampuni. Inaonekana sera ya "msingi wa ushahidi" haionekani kutumika katika kesi hii. Lakini kupuuza ukweli hakutaisaidia uchumi wa Canada. Kuongeza viwango vya kodi ya mapato ya makampuni si bila gharama. Waulize tu Wamarekani. Sean Speer, Mkurugenzi Msaidizi wa Mafunzo ya Fedha na Charles Lammam, Mtaalamu wa Sera ya Uchumi katika Taasisi ya Fraser.