A Canada-U.S. tax gap means a Canada-U.S. tax transfer

[CHIMO]

Given Canada’s already substantially lower corporate tax rates compared to the United States, it’s important to analyze a range of important issues before starting on further rate cuts, to ensure such cuts would benefit Canada.

First, let’s look at the relevant statistics comparing the 1990s and 2000s. Over these periods, the profit share of GDP rose from 8.0 per cent to 12.4 per cent, and the corporate tax rate fell from 32.9 per cent to 25.7 per cent. Between the two decades, corporate profits rose 152 per cent and, as a result of corporate rate reductions, after-tax profits rose 173 per cent. In contrast, nominal investment rose 84 per cent, while constant dollar investment rose 59 per cent.

This evidence suggests there are factors constraining investment from growing in line with new resources. An understanding of these factors is key in shaping future tax policy.

The Canada-U.S. tax differential becomes increasingly important in this context, as our rates fall substantially below U.S. rates. According to the 2010 budget, the Canadian corporate tax rate at 16.2 per cent in 2012 would be half that of the U.S. at 34.2 per cent, with a still-to-come 1.5-point drop.

http://www.theglobeandmail.com/news/opinions/opinion/a-canada-us-tax-gap-means-a-canada-us-tax-transfer/article1991567/