Liberal Leader Stephane Dion has pledged to further reduce the Canadian federal corporate tax rate to better compete with other countries and strengthen Canada’s economic sovereignty. …Dion told the Economic Club of Toronto…“A lower corporate tax rate is a powerful weapon in the federal government’s arsenal to generate more investment, higher living standards and better jobs.” …The previous Liberal government reduced the federal corporate tax rate to 19% from 28%. Dion said he would go deeper than the Conservatives have done with their reduction to 18.5% in 2011. …“If you lower the corporate tax rate, you lower the cost of capital for Canadian companies. Therefore, these companies are induced to spend more on capital equipment. As for foreign investment, we need a big hook to snare investment, including Canadian investment, that might otherwise go south of the border. Finally, it would strengthen Canadian companies against foreign takeover,” Dion concluded.
I think this is a great idea, but I don’t think Dion understands why. This is where Liberal/Left thinking is flawed. A lower tax rate is best because it removes more of the government’s destructive power from the process. It should not be viewed as a tool to create anything other than more liberty, freeing entrepreneurs to create what customers want.
Maybe a business should invest in new capital equipment when it keeps more of its revenue. Maybe it should expand into new territories. Maybe it should launch a new product line. Maybe it should return the extra revenue to shareholders, who may then redirect the money to more productive uses. There are countless possibilities.
Tax rates should be as low as possible because government can’t know which use for capital is best. Central planners can guess, but any accuracy is luck. This proposed tax cut should be explained as a realization of that core truth, not as further evidence of the benevolence and wonderful nature of government control over business.