Corporate tax hikes reduce worker wages: study
Fraser Institute pegs a 1% increase reduces average hourly wage 0.15% to 0.24% the following year.
TORONTO — Increasing corporate tax rates, rather than having no effect on average Canadians, results in lower average wages for workers, according to a study by the Fraser Institute.
The Effect of Corporate Income and Payroll Taxes on the Wages of Canadian Workers http://www.fraserinstitute.org/studies/the-effect-of-corporate-income-and-payroll-taxes-on-the-wages-of-canadian-workers study uses data from Statistics Canada from 1998 and 2013 and looks only at the impact on wages. It shows that after controlling for other factors (such as a worker’s age, education, occupation, and industry), a 1% increase in the corporate income tax rate reduces the average hourly wage rate of Canadian workers by between 0.15% and 0.24% in the following year.
For example, if the 2012 average combined federal-provincial corporate income-tax rate (27.3%) was increased by one-percentage point, the study says the average national hourly wage would decrease between $0.13 and $0.20, which translates into a reduction of $254 to $390 in a worker’s annual wage.
The Fraser Institute explains the decrease in wages occurs through adjustments to the level, or more likely the growth rate of wages. The think-tank contends over the longer term, higher corporate taxes reduce investment, hindering productivity growth, which ultimately impedes growth in wages and the standard of living of workers more broadly.
The study also examines the effect of an increase in the employer portion of payroll taxes-contributions made on behalf of employees to such government programs as CPP and EI.
For every 1% increase in the employer portion of the combined federal-provincial payroll tax, wages decrease between 0.03% and 0.14% in the following year.
In dollar terms, the study suggests that a one percentage point increase in the 2012 average combined payroll tax rate (10.5%) would result in lower annual wages of between $137 and $605.