The United States Could Learn From Canada's Corporate Tax Plan
June 16, 2015
Canada's low corporate tax rates have been a focus of discussion as the nation gears up for its general elections in October. The New Democratic Party hopes to increase taxes on corporate profits, a disclosure that jeopardizes Canada's future as a tax haven, and calls Americans to closely examine what the United States can learn from her northern neighbors. The buzz surrounding Canadian tax increases is indicative of just how influential corporate taxes are on overall economic growth.
Canada's attention to corporate tax rates began in the 1980s. When pressed for growth, the federal government sparked a surge in overall employment and Gross Domestic Product (GDP) by cutting corporate tax rates from 36 percent to 28 percent by 1990. Since then, keeping taxes low for businesses has been a priority in Canada.
The results of Canada's policies have pushed the nation to the forefront of competitiveness for corporate investment, and have demonstrated positive effects on the unemployment rate, personal income, nominal GDP, along with net federal tax revenue.
- Estimates show that between 2000 and 2012, 230,000 new jobs were created in the wake of greater investment in the private sector.
- Personal income per capita increased by $2,269, nominal GDP rose by 8.4 percent, and net federal tax revenue grew by 20.6 billion dollars.
Countries with favorable tax rates have an advantage. As more companies realize the smart choice of starting new ventures abroad or relocating existing ones, investment in U.S corporations will fall. If investment declines, we can expect lags in employment, lower wages and an overall decrease in economic growth. Congressional success in passing a much needed tax reform bill this year is unlikely, but the debate surrounding Canadian tax policies is sure to make its mark in many American minds.
Source: Savannah Sanders, "Canada's Corporate Tax Plan Is Worth Keeping," Economics 21, June 15, 2015.
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