President Donald Trump speaks during a bill passage event on the South Lawn of the White House in Washington, Wednesday, Dec. 20, 2017, to acknowledge the final passage of tax overhaul legislation by Congress. While they have slightly differing views on the landmark tax cuts just adopted in the U.S., and their potential effect on Canada, some of the country’s leading fiscal-policy experts agree on one thing. THE CANADIAN PRESS/AP, Evan Vucci

U.S. tax cuts: Fiscal pros weigh in on how Canada should respond

In short: Don’t expect Canada to engage in a corporate-tax-cut-war with the U.S.

While they have slightly differing views on the landmark tax cuts just adopted in the U.S., and their potential effect on Canada, some of the country’s leading fiscal-policy experts agree on one thing.

In short: Don’t expect Canada to engage in a corporate-tax-cut-war with the U.S. That’s according to three prominent fiscal experts contacted by The Canadian Press as the U.S. passed a bill that will make it cheaper to do business down south.

Kevin Page, Jack Mintz, and Kevin Milligan all agreed Canada has different policy tools to respond. And they expressed doubt the likeliest tool involves taking a chainsaw to corporate tax rates.

The University of Calgary’s Mintz believes Canada should worry about its neighbour’s tax reform; he’s expressed it in National Post pieces with titles like, “Trump’s tax tsunami is about to wallop Canadian jobs and investment.”

His view is that for several decades Canada had two business advantages: lower corporate taxes, and free trade. Now the taxes are about equal, and free trade is in jeopardy. He said Canadian businesses also face new challenges, like carbon taxes; while the U.S. eliminates regulations.

But he said Canadian policy-makers can respond with a variety of solutions. One is tax rates. Others include simplifying regulation, or designing tax policy to benefit investment, say, by steering the proceeds of carbon taxes back to businesses.

“There are a gamut of different policies,” he said in an interview.

“It’s wrong to think that a single nugget is going to solve, deal, with the issue.”

He suggests Canadians seek some clues in an annual World Bank document. In the bank’s annual Doing Business report, Canada scores high in several places — it’s No. 2 in the world for ease of starting a business.

But it points to sore spots.

Overall, Canada ranks as the 22nd-best country to run a business, sandwiched between Lithuania and Malaysia — 13 spots behind its neighbour, the U.S. It’s 57th in dealing with construction permits, and 108th in getting electricity.

Page, Canada’s first parliamentary budget officer, also doubts copycat tax cuts are coming.

“I think it is unlikely Canada will try to match U.S. tax cuts,” Page said in an email.

“Tax reform pressures will likely build in Canada over the next few years leading up to the 2019 elections but it is more likely to have a broader agenda than tax reductions , including fairness, sustainability, growth, (the) environment.”

He said corporate income taxes are one important cost of doing business — but that companies look at a variety of things: dividend, capital and payroll taxes; regulations; and production costs like wages.

He said Canada might even draw some early benefit from the U.S. tax bill. That’s because economic growth in the U.S. tends to spill into Canada. Scotiabank’s models estimate that for every percentage point of growth in the U.S., there’s a half-point growth in Canada.

Page said he expects a short-term positive impact for Canada. But he said that dissipates as the bill’s less-desirable aspects kick in — like the $1.5 trillion added to the debt, Republicans’ talk of offsetting that through social-spending cuts, growing inequality, and the diminished fiscal manoeuvring room whenever another recession hits.

He offers a term to describe the temporary boost for Canada: ”A sugar high.”

Kevin Milligan, a UBC economist who has advised the Trudeau Liberals on tax reform, said he’s not nearly as concerned about this bill as he would be if it gave U.S. businesses a permanent tax advantage of, say, five percentage points, rather than simply putting the countries at similar rates.

“Then we’d be in a world where we’d be really, perhaps, in trouble — where you’d see firms wanting … to shift profits out of Canada. The fact that we’re tied, at about the same rate, means there’s no incentive to move profit,” he said.

“That’s why I don’t have apocalyptic concerns that some others might have expressed.”

He said businesses will continue making choices based on numerous factors, like the cost of providing health insurance to employees, a significant issue in the U.S.; good transit links; pleasant communities; workforce training; and the ability to attract talented immigrants — an area where Canada has gained some advantage, he said, given the current U.S. political climate.

“So that’s the question,” Milligan said.

“Are we best off getting into a tax-rate competition with the U.S., or competing on other grounds?”

Alexander Panetta, The Canadian Press

Like us on Facebook and follow us on Twitter.

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

While the weather in Williams Lake wreaked havoc on roads and flooded homes this week, the swans didn’t seem to mind it at all. (David Fait photo)
Waterlogged: Williams Lake downright soggy after days of rain

October has seen an unusual amount of rain fall in the Cariboo this year

Roberts Drive resident Lisa Tarlings awoke at 6 a.m. Thursday, Oct. 29 to water roaring down the driveway. She and other residents began working to try and divert the water off the road into the ditch. (Monica Lamb-Yorski photo - Williams Lake Tribune.
‘I could hear the water roaring outside’: Williams Lake homes flood after snow, heavy rain

Bette McLennan has lived in her home 41 years and this is the worst it’s ever been

Residents of Riske Creek came to the rescue of a truck driver who slid off Highway 20 in icy conditions with a load of calves Tuesday night (Oct. 27). (Facebook photo)
Riske Creek residents rush to scene of overturned cattleliner on Highway 20 Tuesday night

Residents rounded up cattle and directed traffic in the dark during a heavy snowfall

One person was killed in a two-vehicle crash south of Williams Lake on Highway 97 Wednesday, Oct. 28, 2020. (Photo submitted)
Highway 97 crash south of Williams Lake claims one life

Road conditions at the time were slippery and covered with slush: RCMP

Sooke’s Paul Larouche enjoys gold panning along the Sooke River, looking for small treasures. (Aaron Guillen/News Staff)
VIDEO: Island man finds niche audience by gold-panning on YouTube

Paul Larouche, 29, with over 215,000 subscribers, opens up about his journey

CBSA. (Black Press Media File)
4 sentenced in B.C. steroid smuggling, distribution ring that spilled into U.S.

Canadian Border Services Agency announced the results of a lengthy investigation it called ‘Project Trajectory’

Is it time to start thinking about greener ways to package cannabis?

Packaging suppliers are still figuring eco-friendly and affordable packaging options that fit the mandates of Cannabis Regulations

Search and Rescue Technicians carry a stretcher to the CH149 Cormorant during a 442 Squadron Search and Rescue Exercise in Tofino on February 28. (Photo by: Cpl Joey Beaudin, 19 Wing Imaging, Comox)
Father and son found dead after weeklong search near Pemberton

The father and son had set out for a day of mushroom picking last Thursday

A full moon rises over Mt. Cheam on Saturday, Feb. 8, 2020. (Jenna Hauck/ The Progress)
Rare full moon, Daylight Saving makes for a uniquely spooky Halloween – despite COVID-19

We can’t host costume parties but this weekend is still one for the history books

Join Black Press Media and Do Some Good

Pay it Forward program supports local businesses in their community giving

A woman wears a face mask and plastic gloves while browsing books as a sticker on the floor indicates a one-way direction of travel between shelves of books at the Vancouver Public Library’s central branch, after it and four other branches reopened with limited services, in Vancouver, on Tuesday, July 14, 2020. (THE CANADIAN PRESS/Darryl Dyck)
B.C. reports 234 new COVID cases, 1 death of senior who had attended small birthday party

Roughly 5,700 people are isolating due to being exposed to a confirmed case

A study by SlotsOnlineCanada notes there is at least 88 hours of top-rated horror movies for Canadians to consume this Halloween. (Unsplash)
Spooks and Chill study reveals Canada’s favourite horror flicks

88 hours of top-rated horror movies can fill COVID-19 Halloween

A nurse performs a test on a patient at a drive-in COVID-19 clinic in Montreal, on Wednesday, October 21, 2020. THE CANADIAN PRESS/Paul Chiasson
Interior Health reports seven more COVID-19 cases

Eighty-nine cases remain active, none of whom are currently hospitalized

Most Read