40 Years Later: Small Business Advocacy Still Needed
Dan Kelly column
Financial Post Small Business
Publication date: June 6, 2011
40 Years Later: Small Business Advocacy Still Needed
Just this past week, a small business advocacy group in Canada did something extraordinary. It celebrated its 40th anniversary at its Annual General Meeting in Toronto. That group is the Canadian Federation of Independent Business (CFIB) and it has been the place I've had the opportunity to go to work each day for the past 17 years.
CFIB was founded by an inspirational leader, John Bulloch, who, in a now famous story, read a White Paper by Trudeau's Finance Minister Edgar Benson while in the bathtub. This paper called for dramatically higher taxes for small firms, while not touching many of the incentives available to big business. John, supported by his family's Toronto tailoring business, rallied other small business owners and successfully fought off this attack on Canada's entrepreneurs. In 1971, CFIB was founded.
CFIB has grown dramatically in the past 40 years and has changed a lot. Since I joined the organization, we've been very fortunate to have a courageous and inspirational leader in Catherine Swift who has led the organization through dozens of battles with unions, banks and many, many governments.
Much has changed in Canada too. But the need for strong small business advocacy hasn't changed a bit. When John formed the organization, he felt there was a need for small business representation to combat the often unhealthy coalition between big governments, big unions and big business. Just this past week, issues have emerged to remind me of the need to push back against all three.
In fact, big business has even returned to the very issue that helped form CFIB just this past week. Dr. Jack Mintz and his colleague Dr. Duanjie Chen released yet another paper in late May calling for the elimination of the lower rate of corporate income tax and the lifetime capital gains exemption available to smaller firms.
While the paper notes that these tax policies were put in place to recognize small firms' more limited access to capital financing and excessive compliance costs and cash flow issues, it ignores these realities and theorizes that small firms may choose to stay small because of a "wall" of taxation once they begin to grow.
We've got to get Dr. Mintz out to talk to a few small business owners to "reality test" his theories. His paper goes on to talk about the preferences small firms have with research and development credits. A five minute chat with a small or medium-sized business owner would reveal that accessing such credits is weighted very heavily in favour of big business. Most small business owners just throw up their hands when they look at the paper-chase that is Canada's SRED tax credit system. Unless you can afford to hire a consultant or employ full time people to complete the government paperwork, these credits are out of reach to the majority of entrepreneurs.
Many big firms also have their hands out for every subsidy and grant program that a local or provincial government is foolish enough to offer. While independent insurance brokers in Nova Scotia struggle to keep the lights on in a very high tax province, TD insurance received a $2 million subsidy from the province's NDP government.
As I noted in an earlier column, this attack on the lower small business rate seems to forget the major progress that has been made in reducing corporate income taxes for big business in recent years. Over the past decade, the federal rate for larger firms went from 28 to 15 per cent, while the small business rate dropped a point from 12 to 11 per cent. Instead of facing more than a doubling of taxes after earning over $200,000, growing firms face a one-third increase on profit exceeding $500,000. That seems more like a bunny-hop than a wall. As Dr. Mintz himself notes, 80 per cent of small businesses earn under $100,000 anyway.
As for the $750,000 lifetime capital gains exemption, it basically serves as the retirement policy for entrepreneurs. Small firms essentially do not have access to pension plans, and, in fact, if they offer a group RRSP to employees, they must pay payroll taxes to governments unlike larger firms and governments whose pension systems are tax exempt.
CFIB wants to ensure all small firms wanting to grow have every opportunity to become a medium or large-sized business. CFIB's small business members supported cuts in Canada's general corporate tax rates, even though most can only dream of earning anywhere near the $500,000 threshold. In fact, CFIB has advocated that the clawback of the benefit of the small business rate for firms above $15 million in assets be raised or eliminated. Regular increases in the small business threshold can also help. We do wish, however, that big business advocates would stop calling for increasing taxes on small business as a means of addressing their own calls for further reductions. We have to take these threats seriously. The previous New Brunswick government announced major hikes to the small business rate on Dr. Mintz's advice - a result which is fortunately being reversed at the moment by the current Alward government.
It has been a great 40 years for CFIB, our 108,000 members and Canadian small business. Major progress has been made on many files, but we need to keep a watchful eye on big governments, big unions and big business. While I prefer to read policy papers online than in the bath, the results can be every bit as troubling all these decades later.
Dan Kelly is senior vice president of legislative affairs for the Canadian Federation of Independent Business (CFIB), which represents the interests of small- and medium-sized business and lobbies on behalf of its 108,000 members at the federal, provincial and municipal levels. Follow Dan on Twitter @CFIB.
