Whenever the NDP announces its intention to raise corporate taxes, critics always jump all over them, pointing out that the tax on corporations is not really a tax on corporations, since corporations can easily pass these taxes on to others (such as consumers in the form of higher prices, or workers in the form of lower wages). Yet these critics seldom stop to note that the argument cuts both ways. If corporations don’t really pay these taxes, then what is the point of cutting them either? Indeed, the Progressive Conservative party in Ontario is currently campaigning on a platform that calls for a dramatic reduction of corporate taxes – by 3.5%, from 11.5% to 8% (much more significant than the NDP platform, which calls for an increase of 1%). So why are the Conservatives so much more exercised about this issue than the NDP?
Before getting too far into it, I should mention that underlying the criticism of the NDP there is an important point, which relates to the concept of tax incidence.… Continue reading