Looking Behind Corporations

Many people repeat the argument that the most logical way to increase funding of social programs in Canada is to increase the taxation on corporations. This supposed “underutilized” source of revenue is often seen as a panacea for improving Canada’s health care and education programs; however, this simplistic viewpoint is misguided. The reason is simple—corporations do not pay tax, people do.

Think about what a corporation is. It 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 cannot 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 many 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.

Increasing taxation on corporations is really just a round about way of taxing individual Canadians more. It may make people feel better thinking that faceless, uncaring, business tycoons are the ones footing the bill, but in reality, it is ordinary Canadians who have worked hard to save their money who are burdened by any corporate tax increase.

—Joel Emes, Research Economist, The Fraser Institute

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Last Modified: Wednesday, October 20, 1999.