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

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

Sipili Molia, regional kettle manager, shows off the Salvation Army’s new contactless donation system for the 2020 Christmas Kettle Campaign outside municipal hall on Dec. 1. (Devon Bidal/News Staff)
VIDEO: Tech offers hope as Salvation Army sees need skyrocket across B.C.

Charity is equipping hundreds of kettles across B.C. with ‘touchless giving technology’

Royal Bay Secondary’s leadership class, comprised of Grade 9 through 12 students, is part of the student team organizing this year’s 10,000 Tonight event that shifts entirely online for 2020. (Aaron Guillen/News Staff)
West Shore student food drive shifts entirely online

Drive-thru option removed from 10,000 Tonight in light of COVID-19 restrictions

Colwood resident, Geoffrey Irwin, has been missing since Sep. 27. His vehicle was found in Vancouver on Nov. 25. (Courtesy of West Shore RCMP)
Police search for Colwood man last seen in September

Geoffrey Irwin’s vehicle was found in Vancouver Nov. 25

BC Transit confirmed on Dec. 1 that a Langford employee has tested positive for COVID-19. (Courtesy of BC Transit)
Langford transit worker tests positive for COVID-19

Island Health is conducting contact tracing for the case

Firefighters on scene for a gas leak in the 800-block of Viewfield Road in Esquimalt on Dec. 1. (Vanessa Nicholson photo)
No injuries after vehicle strikes Esquimalt gas line

Esquimalt Fire Rescue was called to the 800-block of Viewfield Road at 5 p.m.

A tongue-in-cheek message about wearing a face mask to curb the spread of COVID-19 on a sign outside a church near Royal Columbia Hospital, in New Westminster, B.C., on Sunday, Nov. 29, 2020. THE CANADIAN PRESS/Darryl Dyck
B.C.’s COVID-19 infection count climbs back up to 656

20 more people in hospital, active cases still rising

Dave Wallace coached the Parksville Royals for 23 years. (PQB News file photo)
B.C. baseball community mourns death of legendary Vancouver Island coach Dave Wallace

‘All who knew Dave and his passion for the game will miss him greatly’

THE CANADIAN PRESS/Nathan Denette
B.C. researchers launch study to test kids, young adults for COVID-19 antibodies

Kids and youth can often be asymptomatic carriers of the novel coronavirus

A sign is seen this past summer outside the Yunesit’in Government office west of Williams Lake reminding visitors and members to stay safe amid the COVID-19 pandemic. (Rebecca Dyok photo)
B.C. First Nation leaders await privacy commissioner decision on COVID-19 information

Release of life-saving data cannot wait, says coalition of First Nations

MLA Jennifer Whiteside is B.C.’s new minister of education. She is speaking out against Chilliwack school trustee Barry Neufeld and asking him to resign. (Black Press)
New education minister calls on Chilliwack trustee to resign

Whiteside echoes former minister’s promise to look at options to remove Barry Neufeld

Peter Beckett. ~ File photo
Supreme Court of Canada to decide if it will hear appeal in 2010 wife murder trial

Peter Beckett has stood trial twice for murder in connection with the death of his wife, Laura Letts-Beckett

Tabor Home in Abbotsford. (Ben Lypka/Abbotsford News)
B.C.’s largest COVID-19 care-home outbreak records 19 deaths, 147 cases

Tabor Home in Abbotsford has been battling outbreak since Nov. 4

Most Read