Working-class corporate tax hero

Donald Trump’s proposal last week to cut the U.S. corporate tax rate from 35 to 15 per cent has been taken as proof that after just 100 days in office he has completely betrayed his white, working-class base (even if studies show they’re not that working class) in favour of traditional, Republican fat-cat tax cuts.

But hold on. Maybe Trump and his base have a more sophisticated understanding of the incidence of the corporate tax than the average U.S. political commentator. If the words “Trump,” “sophisticated” and “understanding” are too jarring together, let’s rephrase: Maybe his base realizes what gives. They might grasp that high corporate taxes are one reason the U.S. Rust Belt has spent the last few decades in slow oxidation. You tax capital, capital goes away. Workers without capital aren’t as productive — or aren’t productive at all, many now being unemployed. Who’s worse off as a result of the tax? Workers, not capital, which is somewhere elsewhere making a good return. Who therefore “pays” the tax? Workers, not capital. Maybe it would be fairer if capital paid. But who says life, or tax, has to be fair?

The view among Canadian commentators seems to be: cross your fingers; maybe Congress won’t let the president have his 15-per-cent corporate tax. Then we’ll be spared the need to cut our corporate taxes again, which we’ve actually been doing a lot of. Between 2005 and 2015, Jack Mintz and Philip Bazel calculate, the average “marginal effective tax rate” on capital in Canada fell from 38.8 per cent to 20.0 per cent, which is quite an achievement in what is sometimes not a very economically sophisticated country.

But a new study from the University of Calgary School of Public Policy by Kenneth J. McKenzie at U of C and Ergete Ferede at Grant MacEwan University suggests progressive Canadians shouldn’t be so upset by the prospect of a corporate tax-cutting race with the U.S. There’s a good chance, they think, that workers—many of them in the Liberals’ blessed middle class— pay the corporate income tax. So if you cut corporate taxes, you cut taxes on workers, which is a very progressive thing to do.