We heard it all along covidPandemic of -19: while we are all in the same storm, we are not all in the same boat. Nothing has made this clearer than soaring corporate profits.
Some companies, like Zoom, have done better during the pandemic because they were well positioned to respond to changing needs. But other companies have taken advantage of the pandemic to squeeze in higher prices.
Corporate profit is one of the main drivers of inflation today. Among the worst offenders are grocery chains and oil and gas conglomerates. In Canada, our three largest grocery chains have posted record profits over the past year. And they did it by charging far more than necessary to cover the increased costs. For example, Loblaw (the parent company of Loblaws, Superstore and Shoppers) has seen its costs increase by 13% over the past year. However, their sales increased by 15% and their gross profits by 21% during the same period. This means that the company profited from the price increase.
Our government can take action to curb corporate profits. In the world war II, the federal government implemented an excess profits tax, both out of fairness and to help fund wartime expenditures. The public was asked to sacrifice a considerable sum for the war effort. The Excess Profits Tax helped create the impression that we were truly “all in the same boat”.
When considering an excess profits tax, it is important to note that corporate taxes work differently than personal taxes. Corporations only pay taxes on profits, not on income. In other words, companies that are in difficulty or that are just breaking even would not be affected by an excess profit tax. Economists argue that this type of taxation is economically sound because it discourages price gouging and taxes windfalls (large, unexpected profits due to exceptional circumstances).
To establish an excess profit tax, you need to determine a “normal” level of profit. This is usually done using historical data. In the world war II, the profit level in 1939 was used as a reference. Policy makers must also decide what tax rate to apply to excess profits. This is usually between 15% and 100%. During the world war IIthe federal government taxed excess profits at 75%.
In 2021, the Parliamentary Budget Officer costed a proposed tax on excess profits of the NDP. They found that a one-time tax on excess profits could generate up to $8 billion in new revenue for the federal government. The NDP The proposal used a company’s average profit rate from 2014 to 2019 to determine normal profit rates and applied an additional 15% corporate tax to that profit on top of the pre-existing federal tax rate of 15%. % on companies.
Another common feature of recent proposals is the application of the excess profits tax only to certain industries. For example, in May the UK introduced a windfall tax on oil and gas companies and channeled income to help households cope with the rising cost of living. The federal government of Canada has proposed a higher tax for financial institutions, and the federal government NDP suggested that this be extended to oil and gas companies as well as other large corporations that engage in profiteering.
Introduce a tax on excess profits, like we did in the world war II, would help reduce corporate profits, generate revenue for large investments, and save workers money by preventing profits. It’s time to tax excess corporate profits!