Missouri’s legislature has approved nearly $2 billion in tax incentives for Boeing after a House vote today, and the plan awaits Governor Nixon’s (D) signature. We’ve written on this issue extensively, following it from...
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- Canada Cuts Corporate Tax Rate to 15%, Lowest Overall Rate in G-7
Canada Cuts Corporate Tax Rate to 15%, Lowest Overall Rate in G-7
On New Year's Day, while Americans were sleeping off their hangovers, Canada achieved its goal of having the most business-friendly tax system of the Group of Seven (G-7) nations - which include, Canada, France, Germany, Italy, Japan, the United Kingdom and the United States.
On January 1st, Canada's federal corporate tax rate automatically fell to 15 percent from 16.5 percent as the last installment of a series of corporate rate cuts launched in 2006 by the administration of Prime Minister Stephen Harper. When Harper initiated his campaign, Canada's overall corporate tax rate was 33.9 percent according to the OECD, third-lowest in the G-7. The federal corporate rate was 22 percent and the average provincial rate was 11.8 percent. Today, Canada now has an overall corporate tax rate of 25 percent, the lowest rate of the G-7 nations.
Canada can only revel in its lowest-tax status for a few months because on April 1st, Great Britain will lower its corporate rate to 25 percent from 26 percent. Britain's rate is schedule to fall even further to 23 percent by 2014. Over the past six years, the only G-7 nations that have not cut their corporate tax rate are France, Japan, and the United States. Japan and the U.S. have combined corporate rate over 39 percent.
While there is considerable hand-wringing in the U.S. about the potential revenue losses associated with cutting the corporate tax rate, Canada did not see a big drop off in revenues writes columnist Neil Reynolds in yesterday's Globe and Mail:
Remarkably, the gradual lowering of the corporate tax rate appears to have resulted in little loss in corporate tax revenue (when compared with long-term, prerecession revenues). Corporate tax revenue did take a big hit ($10-billion) in 2008, the year of the market meltdown. But the tax cuts were barely started in 2008.
By 2010-2011, federal corporate tax revenue reached $30-billion, substantially more than the average of $25-billion in the last four years of the prior Liberal government: 2002 through 2005. Further, federal corporate tax revenue equalled 1.8 per cent of Canadian gross domestic product, a much higher percentage than the revenue produced during the recessionary years in the early 1990s. In tough-times 1992, for example, corporate revenue, with higher tax rates, fell to 1 per cent of GDP.
The drive by Canada and the U.K. to have the lowest corporate tax rates in the G-7 cannot be ignored. Canada is, after all, our largest trading partner, and the U.K. is our sixth-largest trading partner. Perhaps not so coincidentally, China - America's second-largest trading partner - also has a corporate tax rate of 25 percent, nearly 15 percentage points lower than the U.S. rate.
Put in contrast to the urgency of restoring America's global tax competitiveness, the current squabble over another one-year payroll tax holiday looks pettier by the minute.
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