Tuesday, May 31, 2011

If You Tax Large Firms You Get Fewer of Them, If You Subsidize Small Firms, You Get More of Them

FINANCIAL POST --"Small business tax incentives are keeping businesses in Canada small, hindering business efficiency and disproportionately benefiting the wealthy, according to a new study from the University of Calgary. The study, authored by Jack Mintz and Duanjie Chen of The School of Public Policy, said that Canada’s small business tax rate creates a “wall of taxation” in the country that keeps businesses small so they can remain in favorable tax brackets.

Instead of job growth, the authors said that the small business tax rate has led to an abundance of small businesses in Canada that have no intention to grow. Furthermore, the authors said that wealthy Canadians have used the favorable tax rate as a tax shelter, incorporating small businesses to avoid high personal income taxes."

From the paper's summary:

"We show that small business growth is hampered by the existing tax system. As a business grows, effective tax rates on capital investments made by entrepreneurs virtually double when the business grows from as a little as $1 million to over $30 million in asset size (see chart above)."


At 5/31/2011 10:48 PM, Blogger Ron H. said...

I wonder if this same principle applies to rich and poor individuals?

At 6/01/2011 8:30 AM, Blogger morganovich said...


yes. it does.

lots of us are considering leaving.

i have already acquired dual citizenship in a Caribbean tax haven (st kitts).

giving up US citizenship is a seriously thermonuclear option and something i would really prefer not to do, but there is a tax rate at which i would do it.

contrary to leftist beliefs, the wealthy are not "honored" to be milchcows. they, their capital, and their businesses are more mobile than at any time in history.

they will leave.

higher taxes on the rich also get you less of them. look at europe. high taxes are precisely why they have such low class mobility. you cannot save and invest your way from the middle class to the upper when paying 60% taxes.

conversely, look at their perpetual underclass that live off benefits their whole lives.

look what has happened in the US. we increase the duration of unemployment benefits and voila, we have the most long term unemployed since the 30's. look at the explosion of foods stamps and medicaid (50% of us children are on medicaid). the poor are having far more children than the middle class because they are not paying for them (and, in fact, are often paid to have them). the middle class has to, so they have fewer.

so, i'd say the answer to your question is an emphatic yes.

for a good read on the topic i'd recommend murray's excellent and incredibly well footnoted and supported book "losing ground" which essentially proves that the social programs of the "great society" not only created a permanent underclass, but actually reversed positive trends for America's poor that were already in place.

a very worthwhile read.

give it to the socialists on your holiday list.

At 6/01/2011 9:08 AM, Blogger Buddy R Pacifico said...

Is this crony capitalism for mediocre achievers?

At 6/01/2011 12:54 PM, Blogger Ron H. said...


I own a copy of "Losing Ground", and I agree that it paints a sad and alarming picture.

Your suggestion to give copies to the socialists in my life is a good one - in fact I've loaned my copy to several people, and I can tell that their unquestioning assumption that "government is good" has been shaken.

I also offer Friedman's classic "Free to Chose", and for some, I add Hayek, Hazlitt, and dozens of others.

I find that most are well intentioned, and simply unaware that what they have learned, and what they are exposed to by the MSM may be hazardous to their well-being.

At 6/01/2011 12:56 PM, Blogger Ron H. said...


"Is this crony capitalism for mediocre achievers?"

It sure sounds like it. Perhaps it's "No Business Left Behind".

At 6/01/2011 3:42 PM, Blogger morganovich said...


if you like that sort of reading, may i also recommend caplan's book "the myth of the rational voter".

it scared me witless.

it also really cemented my view that democracy has nothing to do with freedom or prosperity. those come from rights. absent inalienable rights, democracy is just a particularly irresponsible and self congratulatory form of tyranny.

this is why i watch the increasingly blatant chiseling away at the bill of rights and of economic rights and freedom so worrying. such rights are our only protection from tyranny of the majority.

the beauty of the american system of government lies in the fact that such rights are inalienable and therefore cannot (in theory) be taken away by the government no matter what. the fact that the word "inalienable" is now read as "unless we really want to" is going to be the death of our system of governance.

tyranny masquerading as the common good is still tyranny.

At 6/01/2011 3:45 PM, Blogger morganovich said...

""Is this crony capitalism for mediocre achievers?"

It sure sounds like it. Perhaps it's "No Business Left Behind"."

i'd say it sounds more like the law of unintended consequences.

people find a tax loophole and jump through it.

remember the old SUV tax treatment that drove sales so dramatically? if it was over 6000 lbs GVW, you could write the whole thing off in one year as if it were a tractor or something.

i question whether this was a deliberate canadian policy as opposed to run of the mill bureaucratic stupidity.

At 6/01/2011 6:55 PM, Blogger Ron H. said...

"if you like that sort of reading, may i also recommend caplan's book "the myth of the rational voter"."

Strange you should say that. It just arrived last week.

It is is now in line to be read right after Griswold's "Mad About Trade", and Thomas E. Woods' "Rollback".


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