Crosby’s President Says Tax Changes Could Kill Jobs That Support the Middle Class
SAINT JOHN – In the 138-history of Crosby’s Molasses, the family has made significant investments in the growth of the company.
But Crosby’s president James Crosby is really worried that the federal government’s coming tax reforms for private corporations could halt that history of growth and potentially lead to the sale of a business owned and operated by the same family for five generations.
Most recently, it spent $8-million on a plant expansion and increased its workforce from 60 to 85 to manufacture products for one of the world’s largest food companies.
To undertake expansions like this, the company has what’s called a “passive investment” portfolio that allows them to have reserves of cash close at hand to makes these kinds of investments.
Finance Minister Bill Morneau has criticized the growth of portfolios like this, saying they’ve been set up in many cases to avoid paying high rates of tax. In order to encourage companies to invest this money right away rather than keeping it in these kinds of portfolios, Morneau proposed raising taxes on them, which financial experts across the country claimed could drive rates as high as 73 per cent.
Crosby objects to a policy like this that forces business owners to potentially make ill-timed investments.
“The best policy is one that leaves more money in the hands of entrepreneurs so we can continue to deploy our capital as we see fit,” he told a Senate committee that held hearings in Saint John recently.
After months of fierce and relentless backlash from entrepreneurs like Crosby, Morneau tweaked that proposal in October. He said that $50,000 per year of passive investment income would be taxed at a lower rate of 53 per cent. Any amount above $50,000 would be taxed at the higher rate.
For companies that make relatively modest investments in their companies, that might seem like a better deal than the original proposal. But for companies like Crosby’s $50,000 doesn’t go very far, says Crosby.
“[That] wouldn’t even pay for our roof repair that we did last year,” he told the Senate committee. “It’s just inadequate and it encourages business like ours to stay small. We need to be encouraging business like ours to take risks and to grow. It’s just not going to encourage smaller companies to get bigger.”
The Senate committee filed its report last Wednesday and most members expressed sympathy for the plight of entrepreneurs like Crosby, recommending the government either scrap or delay their proposed changes.
I spoke with Crosby in September about his concerns. We met up again recently to do a tour of the Crosby plant and talk about whether the changes like the $50,000 threshold on passive investments were steps forward in his view.
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As he told the Senate committee, $50,000 doesn’t go very far in his business. He’s also bothered by the comparisons the government has made when justifying its planned reforms to the public.
Government ministers and backbench MPs have been saying that business owners should be paying the same amount of tax as salaried employees – the government argument being that many of them are taking advantage of current tax laws to pay less tax than people on salary.
Financial analysts have crunched the numbers and argued that most business owners are actually paying more, not less tax than salaried employees.
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Regardless, Crosby says they’re making the wrong comparison. “We shouldn’t be comparing salaried people to private businesses,” he says. “We should be comparing private businesses to publicly traded businesses.”
Publicly traded companies are paying a far lower tax rate, he says, placing privately owned corporation at a distinct disadvantage.
“What concerns me is the playing field we’re on,” he says. “It was already tilted in favour of publicly traded companies, which are paying 26.5 per cent tax in Ontario on their passive investment income with no limit.
“And you’ve got privately owned businesses…they say the first $50,000 is going to be taxed at a low rate. Well, that lower rate is 53 per cent in New Brunswick. So already we’re comparing 53 per cent tax to 26.5 per cent tax. Then beyond $50,000 is going to be 73 per cent.”
According to a recent Toronto Star investigation, the current tax rules have allowed publicly traded companies to save $10.5-billion a year through legal loopholes. By changing the current rules to how private corporations are taxed, the government will only gain an estimated $250-million a year in additional tax revenue.
Crosby, like many financial advisors and entrepreneurs, says private corporations are obviously being taxed too much, and the proposed changes will make the situation worse. He doesn’t understand why these reasoned arguments are having no effect on policymakers or elected government officials.
He sent personal letters in September outlining his concerns to all 38 Atlantic Canadian MPs. “I received four responses and all four contained the same talking points around fairness and [how] we have to help the middle class,” he said.
But Crosby says the planned tax reforms will hurt the middle class because they will harm and in many cases eliminate the businesses that create jobs for them.
“What I struggle to understand is how taking more money out of my family’s pocket is going to help us grow and expand our business, and to create more jobs,” he says.