NDP Leader Jagmeet Singh is calling for an excess profits tax to help pay for emergency pandemic spending, drawing inspiration from temporary tax measures imposed by Canada and the U.S. during the First and Second World Wars to address profiteering concerns.
At a news conference on Parliament Hill, Mr. Singh repeated his calls for a wealth tax and tougher enforcement of offshore tax evasion while also adding the new proposal to his party’s wish list of tax measures.
Mr. Singh said that while many businesses are suffering during the pandemic, he pointed to companies such as Amazon.com Inc. and large grocery chains as examples of firms that are enjoying “massive” profits because of shifting consumer trends. He said corporate profits that are above prepandemic averages should be subject to at least double the current corporate tax rate.
“It should not be everyday people that pay the price for the cost of this pandemic or the cost of the recovery," he said. “Those at the very top who have enjoyed massive profits should certainly pay their fair share.”
Mr. Singh later asked Prime Minister Justin Trudeau in Question Period on Thursday whether he would support the idea. Mr. Trudeau did not directly address the question, but said the government has already raised taxes on the top 1 per cent of income earners.
Katherine Cuplinskas, press secretary to Finance Minister Chrystia Freeland, also did not directly address the NDP proposal, but said in an e-mail that the government pledged in last month’s Throne Speech to “identify additional ways to tax extreme wealth inequality," including by limiting the stock option deduction for wealthy individuals at large, established corporations and "addressing corporate tax avoidance by digital giants.”
The NDP is in a position of influence on Parliament Hill as the only opposition party to vote with the minority Liberal government on a confidence vote this week. The Liberals secured the NDP’s support in exchange for adopting NDP policy proposals in areas such as sick leave and increasing income support benefits. In addition to the new call for a tax on excess profits, Mr. Singh also repeated his party’s earlier requests for a 1-per-cent wealth tax on family wealth over $20-million and increased taxes on “web giants” such as Amazon, Google and Facebook.
Some economists in Canada and the United States have recently called for an excess profit tax to cover the cost of high levels of emergency government spending during the pandemic. Both countries imposed temporary excess profit taxes during the First and Second World Wars.
Allison Christians, the H. Heward Stikeman Chair in Tax Law at Montreal’s McGill University, who has researched excess profit taxes, said such a temporary tax would make “great sense” in the current environment. However, she cautioned that the continuing uncertainty regarding how countries tax multinational corporations complicates the issue. She said such a tax could be more easily applied to Canadian companies.
“It’s not a punishment of their success. Rather, it’s an acknowledgement that the brokenness of the market has created a windfall for them,” she said in an interview. “And if the government takes some of that, especially now to pay for things that we now really are struggling to pay for, for example, health care, then that’s good over all for the economy.”
Prof. Christians said her review of Canada’s excess profit tax during the Second World War left her with the impression that it raised some revenue, but not a lot, and that it didn’t harm the economy.
Scott Hodge, president of the Washington-based nonpartisan Tax Foundation, wrote in July that modern advocates of excess profit taxes tend to have an “idealized” view of how they worked in wartime. He noted that the foundation’s research at the time found that such taxes were difficult to administer “and certainly impacted economic growth.”
The NDP made its call on the same day that the Parliamentary Budget Officer released a report indicating that increased spending on business tax enforcement by the Canada Revenue Agency is generating billions in new tax revenue and a nearly sixfold return.
Thursday’s PBO report examined the effect of $1.9-billion in additional funding that has been provided to the CRA over an eight-year period starting in 2015-16. The government has said the funding is aimed at the underground economy and preventing tax evasion and aggressive tax planning, and that it expects it will generate $13-billion in increased revenue.
The PBO doesn’t confirm that figure, but says it appears the government is generating about $5.70 for every new dollar spent on business tax compliance. It projects that ratio will decline over time, which suggests the government may fall short of the $13-billion target. It also notes that Ottawa will likely only collect about 81 per cent of the identified revenue because of appeals and other challenges in collecting taxes owed.
Mr. Singh said the PBO’s findings support his call for increased tax enforcement as a way of addressing concerns over the federal deficit, which the PBO said last month could reach $328.5-billion this fiscal year.
Dan Kelly, president of the Canadian Federation of Independent Business, said tax proposals from the NDP need to be taken seriously given the party’s current position of influence in Parliament. He said “excess profits” is hardly a concern for most small businesses this year.
He cautioned though that the government should be careful in imposing any new tax-enforcement measures on businesses during a period in which many are struggling to keep the doors open while managing the new paperwork burden created by various support programs.
“To enable the CRA to go after tax cheats, they have to create a whole bunch of paperwork for thousands who aren’t," he said. “And right now, this would be a real poor use of time for small-business owners to be facing giant audits."
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