Thursday, January 06, 2011

"Go North", not to Alaska, but Canada

A lot of bloggers have been praising the opt-ed by Washington Times journalist James Bacon titled "Go north, young man, go north - Canada is quietly surpassing the U.S. as the land of opportunity".

Some excerpts:

"Look what's not happening in Canada. There is no real estate crisis. There is no banking crisis. There is no unemployment crisis. There is no sovereign debt crisis. Recent reports suggest that consumers are loading up too much debt, but Canada shares that problem with nearly every other country in the industrialized world."

"Now, instead of expanding Canada's welfare state, the conservative government led by Mr. Harper is intent upon building the nation's global competitiveness. Our friends in the Great White North cut their corporate tax rate to 16.5 percent on Jan. 1 and will see it drop to 15 percent next year. That compares to the current U.S. corporate tax rate of 35 percent. That will give Canada the lowest corporate tax rate among the G-7 nations and an eye-popping advantage for businesses wondering whether to locate on the U.S. or Canadian side of the border."
Wait a sec... 35% U.S. corporate tax rate compared to 15% in Canada?!!!  That's a huge difference.  Luckily, I work for a good company that has profit shares, share options, and wide benefits.  With a lower corporate tax rate, those savings are simply passed onto our employees.  Then, guess what, the government still gets its money from income tax, CPP, and EI deductions.

All the lefties like Jack Layton bash business when they see that companies get to keep more money.  It makes no sense to me and defies logic.  Here they want their union members to get more benefits from a company but want to tax those same companies at a higher rate.

With the Canadian Loonie and U.S. Greenback now at par for some time, will Canadian investors keep their money in Canada or buy up companies in the U.S. and abroad, or both?


Anonymous said...

Not to mention we have a leader who sticks his neck out and supports Israel and Jews around the world.

But I fear our real estate bubble is about to burst.

Anonymous said...

The 35% US vs. 15% Cdn. rate is not a fair comparison. Most states in the US do not levy a corporation income tax, while most provinces levy a 8% to 12% rate in Canada. Therefore, a corporation in Texas would face only a 35% federal rate vs. a 27% combined federal/provincial rate in Ontario for example.

Second, these rates are the statutory rates, not "effective rates". US corporation income tax allows far more deductions, faster depreciation allowances and far more tax credits for certain industries than the Canadian corporation income tax does. When these differences are factored in the US "effective rtae" is more like 25% relative to the Canadian system.

Therefore, these cuts to Canada's federal rates simply bring our combined federal/provincial corporation income tax into line with the US - rather than providing us with a huge advantage.

As for other G7 nations, I would point out that David Cameron, as part of his restraint program, is also cutting the UK corporation income tax rate to 24% over the next 4 years. Since the UK is a unitary state (no second level of government) the 24% rate is comparable to the combined rate of 27% in Ontario. This is why Harper has been hammering on Ontario and the other provinces to get their rates down along with the federal rate.

To sum up, these federal rate reductions are not giving us a huge advantage. They are simply keeping us competitive with the US and other industrial countries. But imagine where we would be if the Liberals and the NDP stopped these rate reductions.

Mike B. said...

Excellent points. However, the optics to the world that federal corporate taxes going down in Canada is certainly showing that we're headed in the right direction. Provinces should also get the hint and hopefully it creates incentives for them to follow suit.