In the world of tax accounting theories, corporate tax cuts should create greater investment opportunities across all industries. Most of the investors will see the tax cuts as an opportunity to invest tax savings to drive business growth.
What really happens is something of a surprise as middle-income class workers do not see their income levels increasing with reducing corporate taxes.
As per Ethan C. Rouen, an assistant professor at Harvard Business School, and he says that corporate tax cuts lead to having GREATER INVESTMENT POTENTIAL, but this is not going to positively impact the middle-income class. He further suggests that corporate tax cuts may end up widening the income gap as the wages remain static and the amount of tax savings is more likely to be investing in capital that would result in creating high returns.
The investment returns don’t belong to the middle-income class workers, but those returns are going to benefit capital owners in making more money.
The proponents of corporate tax cuts argued that by having an increase in investment returns will transfer the benefit to workers in shape of high wages. But certainly, this is not the case to believe. As reportedly, the wages remain stagnant, but unemployment level goes down when there is an increase in returns.
Prior research largely focused on how personal taxes impact middle-income groups. But this article concentrates primarily on the impact of corporate counterpart in generating investment opportunities and increasing income inequality.
This income inequality may have many more factors apart from the potential impact of corporate tax cuts. For example, large companies may pay more for a similar job as compared to smaller firms; lower relative salaries can also result from gender discrimination and racism.
One of the logic for the CRA to reducing corporate taxes in Canada is that it will attract more companies to invest in our country and that means more employment, high living standards and that everybody will benefit. The benefit of higher returns should go in part to all workers, the driving force for all workers to show high productivity. Thus, it improves the socio-economic outlook of Canada ahead.
A plot in a nutshell; corporate tax cuts mainly benefit shareholders and CEOs, not workers. As it is evident in recent research conducted by Center on Budget & Policy Priorities (CBPP) and that there is only a modest share of corporate tax cuts flows to workers which may leave most Canadians worse off.
What really matters is that how corporate tax policymakers should develop M&E Framework that ensures low-income class works are not going to be exploited and also ensures that tax savings are going to be invested which may result in increasing high employment opportunities.