If You Tax Large Firms You Get Fewer of Them, If You Subsidize Small Firms, You Get More of Them

FINANCIAL POST --"Small business tax incentives are keeping businesses in Canada small, hindering business efficiency and disproportionately benefiting the wealthy, according to a new study from the University of Calgary. The study, authored by Jack Mintz and Duanjie Chen of The School of Public Policy, said that Canada’s small business tax rate creates a “wall of taxation” in the country that keeps businesses small so they can remain in favorable tax brackets.

Instead of job growth, the authors said that the small business tax rate has led to an abundance of small businesses in Canada that have no intention to grow. Furthermore, the authors said that wealthy Canadians have used the favorable tax rate as a tax shelter, incorporating small businesses to avoid high personal income taxes."

From the paper's summary:

"We show that small business growth is hampered by the existing tax system. As a business grows, effective tax rates on capital investments made by entrepreneurs virtually double when the business grows from as a little as $1 million to over $30 million in asset size (see chart above)."