Latest study by Duanjie Chen and Jack Mintz challenges current
incentives, policy rationale
CALGARY, May 30, 2011 /CNW/ - In a paper released today by The School of
Public Policy, Duanjie Chen and Jack Mintz analyze small business tax
policies. The authors find that despite the common belief that small
business tax concessions encourage job creation and economic growth,
this cannot be substantiated.
"The incentives undermine the neutrality of the overall tax system and
the goals of simplification, economic efficiency and fairness," the
authors write. Ironically, the current system encourages companies to
break up into smaller, less efficient units.
Chen and Mintz also refer to a "wall of taxation," saying that smaller
companies are penalized as they try to grow. Further, small business
tax breaks disproportionately benefit wealthy Canadians.
The analysis assesses the impact of taxes on small business growth by
estimating the amount of tax paid on the rate of return to capital as
the company gets larger. It shows that as a business grows effective
tax rates on capital investments virtually double when the company goes
from $1 million to $30 million in asset size.
In addition to challenging current provincial small-business tax
policies, the authors provide a clear set of recommendations for
government: Encourage investment in depreciable assets, create a
capital gains incentive for small businesses going public, and reduce
the lock-in effect of capital gains taxes.
This also means replacing the current small business tax deduction and
lifetime capital gains exemption, which Chen and Mintz say hinder
The paper can be found by going to www.policyschool.ca, then clicking "latest papers".
SOURCE University of Calgary - School of Public Policy
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