Corporate Tax Freedom Day Is a Meaningless Calculation
Contact:
Michael Walker, Executive Director
The Fraser Institute, (604) 714-4545 Email: michaelw@fraserinstitute.caRelease Date: 31 January 1999
VANCOUVER, BC>>> It's only January and the battle of the calendars is already underway. The Canadian Community Reinvestment Coalition has trumpeted January 19th as "Bank Tax Freedom Day," and January 28th proclaimed as "Corporate Tax Freedom Day" by a collection of labour groups. These proclamations attempt to gain credibility by associating themselves with the Tax Freedom Day popularized every year by The Fraser Institute.
While no one could expect that there is any connection between these groups and The Fraser Institute, some are fooled into thinking that the Corporate and Bank Tax Freedom Days are calculated in a similar way to the Tax Freedom Day we calculate ann ually for the average Canadian family. Don't be confused, there is little similarity.
Tax Freedom Day adds up ALL the taxes that a family pays and divides that amount by the income that the family earns. Of all the taxes levied on corporations by all levels of government, the so-called Corporate Tax Freedom Day includes only one tax levied by only one level of government. Bank Tax Freedom day uses total revenue as the income measure. Quite simply, this is an incorrect starting point. Before a corporation is taxed, it is allowed to deduct expenses such as wages and rent to get to t he equivalent of what we know from own personal income tax forms as "taxable income."
Excluding taxes, or inflating income, results in a much earlier (and misleading) date than if all taxes were included, and the correct income measure was used. As anyone who got past basic math can tell you, if you shrink the numerator, or inflate the denominator, you get a smaller number.
Pointing out these serious measurement problems inevitably leads to the question, "So why doesn't The Fraser Institute calculate the correct Corporate Tax Freedom day each year?" The reason is simple-corporations do not pay tax, people do.
Think about what a corporation is-machinery, contracts, office space, employees, shareholders, bondholders, and so on. These parts work together to make income for people, and corporate tax is, therefore a tax on people. The corporation itself cann ot pay the tax because it is not the final destination of the income it generates. In the end, people pay the corporate tax. There are, of course, corporations owned by wealthy families and these families bear a portion of the tax. But there are also man y ordinary working people who entrust their savings to mutual-fund managers. These managers invest this money in corporations, and the income of those corporations flows back to these small investors. Approximately one-half of all Canadians now own shares , directly or indirectly, in the Canadian banks. Money set aside by employers for pensions is also invested in corporations. For example, OMERS, the Ontario Municipal Employees' Retirement System, is one of the largest stock owners and traders in Canada.
While Tax Freedom Day, Corporate Tax Freedom Day, and Bank Tax Freedom Day sound like they have a lot in common, the similarity ends with the names.
Tax Freedom Day for the average Canadian family includes all the taxes that a family pays-including corporate taxes. Ultimately, individuals pay all taxes that are levied. Accepting this leads to the conclusion that the notion of a Corporate or Bank Tax Freedom Day is at best, redundant, and at worst, disingenuous.
Established in 1974, The Fraser Institute is an independent public policy organization based in Vancouver.
For further information contact:
Suzanne Walters, Director of Communications,
The Fraser Institute, (604) 714-4582,
Email suzannew@fraserinstitute.ca
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