Jack Mintz is spoiling for a fight with the CFIB. Providing low taxes and other support for small business has been public policy across Canada for years. Mintz is now suggesting that low small business taxes may be bad for economic growth:
In contradiction to the widely held view that small business tax concessions encourage growth, such small business tax relief could actually be antithetical to growth by creating a “taxation wall.” First, it could result in the breakup of companies into smaller, less efficient-sized units in order to take advantage of tax benefits even if there are economic gains to growing in size. Second, it could encourage individuals to create small corporations in order to reduce their personal tax liabilities rather than grow companies. And third, it could lead to a “threshold effect” that holds back small business from growing beyond the official definition of “smallness,” regardless of the criteria for measuring size (e.g., the size of revenue or assets, or the number of employees).
I don’t think I will weight too much into this issue but I will say that when former Premier Bernard Lord lowered the small biz tax rate to virtually zero a lot of unincorporated self-employed people switched presumably for tax benefits. His other two claims seem intuitive but it is really hard to model this kind of thing because of all the other extenuating factors.
I think a better approach to the subject is a broader dialog on the definitions of small business, the roles they play in a local economy, etc. This has been my approach and it is why I bristle when politicians cut small business taxes to ‘stimulate economic growth’. Because 98% of small businesses operate exclusively in the provincial market it’s hard to see how cutting their taxes will lead to economic growth. Now, if you could isolate the 2% that export and those that have breakout potential, that’s a different story.
Anyway, I thought this new report would be interesting to folks here because Mintz was also the architect of New Brunswick’s bold tax plan under Shawn Graham which was supposed to lead to dramatic economic growth. While it may be coincidental, it is interesting that since the Mintz tax plan was rolled out New Brunswick, the province hasn’t seen a single net new job created. Ooops. Chances are Mintz is unlikely to revisit his thesis that deeply cutting taxes will stimulate growth based on the experience of New Brunswick. I did hear him say that he had recommended an increase in the HST to offset the corporate and personal income tax cuts.
The wheels on the bus go round and round.