Alberta gives gives $2B to U.S. treasury (external - login to view)
Wasted tax revenue points to need to reform broken system
By Gil McGowan, For The Calgary Herald September 6, 2010
Labour Day has marked the contribution of the labour movement to Canadian society for almost as long as there has been a Canada.
Thanks to pressure from unions and others, most Canadians now enjoy eight-hour work days and 40-hour work weeks, weekends off, vacations, overtime pay, benefits, pensions, public health care -- the list of achievements is too long to put them all here.
The labour movement's role in creating a well-paid middle class is undeniable -- as are the benefits that brings to our society.
A large chunk of the population earning enough money to fuel the economy and pay taxes is a good thing.
But while we, in the labour movement, are happy to do our bit on taxes, it is disconcerting to note this Labour Day that the Alberta government is giving away billions of tax dollars. Yes -- that's billions.
This year the province will allow $2 billion to be wasted that would pay for a lot of extra health care and other vital public services.
How can this be happening? It is the consequence of tax cuts for large corporations implemented by the provincial government.
Those tax cuts mean that U.S. corporations operating in Alberta will pay $2 billion this year in taxes to the U.S. government, rather than pay that same amount into provincial coffers.
Alberta charges a corporate tax rate of only 10 per cent for large corporations, by far the lowest in Canada (we do not, incidentally, have the lowest small-business tax rates).
The federal government recently lowered its corporate rate to 15 per cent. Our combined corporate tax rate is 25 per cent, compared to 35 per cent in the United States.
But American companies don't benefit when Canadian rates are cut. U.S. tax rules stipulate that corporations have to pay a total of 35 per cent.
Whatever is charged in Canada goes to the Canadian federal and provincial governments, and the difference between the Canadian and U.S. rates goes to the treasury in Washington.
So, Alberta takes its share (10 per cent), Ottawa takes its share (15 per cent), and the U.S. takes 10 per cent to bring the total to 35 per cent.
Last year, that 10-percent difference flowing from U.S. corporations operating in Alberta was $2 billion. Alberta could double its rate and keep that $2 billion here and the bottom lines of those U.S. companies would remain the same.
That's right -- we could get $2 billion more for health care or other public services here without anyone paying any more in taxes. We'd just stop giving it away to our American neighbours.
The $2-billion giveaway is part of a larger pattern of tax madness in Alberta.
We have by far the lowest personal income tax rate for the very wealthy, but among the highest tax rates for the lowest-income workers.
Alberta is one of the only provinces to not charge a tax on financial institutions, but our small business rate is higher than many other jurisdictions.
Because some tax rates are far too low, we rely on unsustainable oil and gas royalty revenue to fund our programs -- and that's why the recent economic downturn left so many Albertans scratching their heads. In a province blessed with the world's most sought-after natural resources, a highly educated workforce and one of the most sustained economic booms in history, it took only one global blip in the markets and our provincial cupboard was bare.
This instability is due to a tax system that does not work for the long-term health and prosperity of Albertans. We are not saving for the future. We take money from the investment gains of the Heritage Trust Fund and spend it. We have little capacity to weather changes in oil and gas prices. And we have no plan for a post-fossil-fuel economy.
The economic situation in Alberta is far from rosy today. News from the U.S. and Europe has economists and analysts concerned that the recovery from the recession is weak, uncertain times lie ahead and some fear a double-dip recession is on the horizon.
This makes it vital for the government to fix our broken revenue system now.
This can be done if we have a simple, grown-up conversation about revenues and how to put us on more stable, sustainable ground through changes to the tax system for both individuals and corporations.
While some have called for a provincial sales tax, we believe that unfairly punishes Albertans on low incomes.
We can start to fix the system by acknowledging that while the Americans may be our closest friends, sending them $2 billion that they haven't even asked for isn't being a good neighbour, it's being a fool. And, you know what they say about a fool and his money . . . .
Gil McGowan is president of the Alberta Federation of Labour, which represents 140,000 workers in the province.
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