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.

Just Posted

Tour de White Rock, other events still on, despite waterfront delays

City staff hopeful Memorial Park could be half complete by Canada Day

UPDATE: Man in mid-20s killed in targeted shooting in Abbotsford

Location of shooting the same as where innocent bystander Ping Shun Ao killed in 2015

White Rock to share water-treatment technology

Research findings to be up for perusal at Jan. 25 open house

Crash at 108th Avenue and Whalley Boulevard in Surrey

Emergency crews are on scene after two-vehicle collision

Machete-wielding man arrested in North Delta

Police chased the man down Kittson Parkway before arresting him

FURRY FRIDAY: Surrey animal shelter’s adoptee of the week has sad back story

Meet Eclipse, this week’s featured animal currently at Surrey Animal Resource Centre

Giants fall in six-round shootout

Visiting Victoria squad beats Vancouver 4-3 at Langley Events Centre

World’s fastest log car made in B.C. sells for $350,000 US

Cedar Rocket auctioned off three times at Barrett-Jackson Co., netting $350,000 US for veterans

Bad timing: Shutdown spoils Trump’s one-year festivities

Trump spends day trying to hash out a deal with Senate Minority Leader Chuck Schumer

RCMP nail sex toy thief

Shop owner plays a role in arrest

Ice-cream-eating bear draws controversy

An Alberta Wildlife Park posted a video this week of one of their bears going through a Dairy Queen drive-through

Police arrest pair after ‘high-risk vehicle takedown’

Vancouver police say replica handgun found in alleged suspects’ vehicle

Fernie, RCMP go to court over city log books in fatal ammonia leak probe

Log books center stage in clashing of investigations between the city and RCMP

B.C.’s biggest pot plant planned for Oliver

Co-founder Tony Holler said the 700,000 sq. ft. facility would produce 100,000 kg of pot per year

Most Read