Wednesday, March 30, 2011

Ignatieff's Election Platform Debunked- Corporate Tax Cuts And CPP

With Ignatieff releasing another plank in his platform today, changes to supposedly boost CPP, and with Ignatieff continuing to repeat how those bad banks don't deserve corporate tax breaks, it's time to put the two planks of the Liberal platform together, something it seems Ignatieff and the Liberal Party failed to do. The problem for Ignatieff is with today's platform release, it's like the Liberal leader is now going to try and strengthen CPP when in fact his platform to raise corporate taxes damages the strength of the CPP plan. Why? Well, you can start with this:

Who benefits from bank profits?

"Canadians do." At least, that's the line from the bankers. But what actually happens to those billions in profits? It's tempting to think of Daddy Warbucks-like bank CEOs gleefully counting out their bonuses and stock options. But CEOs don't make billions. Only millions. Of the $13.3 billion in profit made by all of Canada's chartered banks in 2004, they paid out $4.5 billion in dividends to their stockholders. You're probably thinking about Daddy Warbucks again.

But some of the biggest shareholders in Canadian banks are the big public and private pension funds and the big mutual funds — in other words, most Canadians. Let's take the Canada Pension Plan, as an example. It owned $2.6 billion in stock of the Big Six banks as of March 31, 2006. That's about $150 in bank stock for every one of its members.

At the $41-billion Ontario Municipal Employees Retirement System pension plan, banks occupy four of its top 10 equity holdings. Bank stocks are popular holds in hundreds of equity mutual funds too, because banks are such a big part of the Canadian economy, and because the market performance of the financial sector has been nothing short of sizzling over the last few years. For example, the giant Investors Dividend fund — with $11.8 billion in assets — lists five banks as its top holdings.

After paying out their dividends, banks use the leftovers to invest in their own operations. And they like to point out that they paid $7.6 billion in taxes in 2004. So, if you're so inclined, criticize the big banks for branch closures, or for not paying more interest, or for their service charges, or because you think they're too big and impersonal. But if you're a holder of bank stock (and directly or indirectly, we all are), rising profits have also meant rising dividends and stock prices that have, on average, doubled in the last four years.

Money we can take to the bank.

So there you have it. Much of the strength of the CPP is based on investment returns from corporations such as banks. And banks are only a percentage of corporations the CPP is heavily invested in. Raising corporate taxes results in lower dividends paid to funds such as CPP. Many mutual funds, trusts, and other investments held by seniors make their cash frm divedend payments. Why does Michael Ignatieff want to damage these dividends? One would think when a party puts forth an election campaign platform, each plank would mesh with the others. In the case of corporate tax cuts, make that corporate tax increases, Ignatieff and the Liberal Party are actually hurting the very CPP plan they claim to want to improve.


Patsplace said...

Silence this man!!! He seeks to expose the fool in Igula, silence him!!

Calgary Junkie said...

Another consideration is that many people are corporate animals. I.E., they wouldn't survive in the concrete jungle, if there weren't big corporations to hire them. Face it, most people aren't inclined, or even cut out to work for themselves. They need that "big bad corporation" to put bread on the table.

West Coast Teddi said...

Big Corps hire and retain many thousands of employees who are comfortable working for a living, enjoying their benefits, and taking care if their families. There is profound stability in a Big Corp until one begins to tinker with their formula for success and the tinkerer is BIG Government!! Don't mess with the tax rate, the dividends, the benefits - leave Big Corp alone

Anonymous said...

Another great post, Paulsstuff!
-- Gabby in QC

paulsstuff said...

Thanks Gabby. I'm about as middle income as they come. My retirement savings are actually invested in one of those big bad corporations.

maryT said...

People working for the 400,000 corporations in Ontario pay taxes and ei and cpp.
In 2009 the Finance minister met with all the prov finance ministers and changes to the CPP were agreed to. They come into effect on Jan 1, 2012. Those changes are available at

paulsstuff said...

Funny nobody in the media mentions that Mary.