Blogs are opinion pieces and reflect their author’s views

THE COSTLIEST TAX OF ALL: RAISING REVENUE THROUGH CORPORATE TAX HIKES CAN BE COUNTER-PRODUCTIVE FOR THE PROVINCES

Raising taxes can come at a serious cost. Not just to the taxpayer, of course, but to the economy.
Every tax hike naturally leads people or companies to reallocate resources in ways that are less
productive, resulting in a loss of income-generating opportunities. At a certain point, raising taxes
becomes manifestly counterproductive, with the revenue lost due to the negative economic effects
outweighing any tax gains. In cases like that, a government would actually raise more money by
lowering taxes, broadening the tax base, than it does by increasing taxes.
In fact, an analysis of the tax-base elasticities of the provinces, using data from 1972 to 2010, reveals
that this very phenomenon is what occurred in Saskatchewan, which raised corporate taxes to a point
where it began to backfire, sabotaging the government’s goal of raising more revenue. It also occurred
in New Brunswick, Newfoundland and Labrador, P.E.I., and Nova Scotia. In all these provinces, tax
increases on corporate earnings actually ended up yielding less for the provinces than the provincial
governments would have collected had they instead lowered corporate income taxes.

Download publication