Tax manoeuvring may come at a cost

When it comes to income-tax revenues, 85 per cent comes from wage earners or their equivalent. As an 85-per-center, I have a bone to pick with those members of the 15 per cent who are small business corporations for tax purposes and not for business purposes.

Prior to the 1971 tax reform legislation, corporations paid 21 per cent tax on the first $35,000 of taxable income and 50 per cent on amounts above that figure.

In an effort to level the playing field, one minister of finance proposed taxing the income of all corporations at 50 per cent. The threats put forth by businesses that benefited from lower rates were loud and predictable. They ranged from declaring bankruptcy to an exodus to the United States.

In reality, many businesses that would have existed as proprietorships or partnerships would have reverted to this business model, and none of this small business treatment would subsist today.

But politicians caved in and complex legislation such as the small business deduction and professional corporations ensued. In other words, an entire industry was created, promoting “smallness” for tax purposes.

I have often wondered what long-term damage has been done to the economy by not taxing all business corporations on an equal basis. Does encouraging smallness hamper business expansion by encouraging selfish, self-centred navel gazing? Robert B. Day, Ottawa