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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.

January 19, 2016   by PLANT STAFF

corporateincomeTORONTO — 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.


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2 Comments » for Corporate tax hikes reduce worker wages: study
  1. Ignatz deFyre says:

    I have a serious issue with the manner in which this, and many other related “studies” and reports are framed; as if there is absolutely no agency behind market decisions. This intentional Fraser Institute obfuscation is unacceptable and distorts the discussion.

    There is no invisible hand that magically reduces workers’ wages. Rather, a Corporate DECISION IS MADE to pay the Corporate Tax increase out of the wages of the workers, rather than out of the compensation of the Directors or the profits of the Corporation.

    It’s deplorable that media, including Plant Magazine, uncritically pass this BS along.

    Let’s call a spade a damn spade, shall we?

  2. Gordon says:

    I am a manufacturer with 4 employees my sales are under one million. The more the government taxes and their fines and penalties the less that I can give my employees, I expect more and have to reduce my employees hours . As a director I come last on the payroll. All taxes have to come down and they will only go up because of Govt Debts. So we will see less manufacturing in the years to come. Govt also has over regulated seen by the mass closers of resource based manufacturing. We need wiser people running the country.

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