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Trump reforms lay bare Canadian policy missteps

Trump reforms lay bare Canadian policy missteps

Source: Fraser Institute
Authors: Jason ClemensNiels Veldhuis

Ignoring Donald Trump’s unorthodox approach to his presidency, particularly his use of Twitter, the Trump administration has a number of noteworthy accomplishments. The sweeping tax reformsapproved by Congress in December coupled with ongoing regulatory reforms have established a firm foundation for U.S. economic growth. At the same time, the Trump policy reforms lay bare the policy missteps of other countries including Canada.

Both President Trump and to a lesser degree Prime Minister Justin Trudeau were elected based on promises to improve their respective economies. The two leaders, however, have taken very different approaches to achieving stronger economic growth.

The U.S. Tax Cuts and Jobs Act reduced the statutory federal tax rate for businesses from 35 to 21 per cent, allowed the immediate expensing of investments in machinery and equipment, and adopted a host of international tax rules that will bring the U.S. more in line with international competitors. It will lower the average combined federal-state corporate income tax rate from 39.1 to 26.0 per cent. More importantly, it will lower the effective tax rates on new investments from 34.6 per cent to 18.8 per cent. Put simply, these tax reforms have made the U.S. significantly more attractive to investment, entrepreneurs and professionals.

Canada’s comparable effective tax rate on new investments is 21.2 per cent, and has nudged up recently. Prime Minister Trudeau has stated unequivocally that he won’t reduce Canadian taxes to remain competitive.

More importantly for Canada, though, the federal and many provincial governments have increased personal income tax rates to the point where the top rate now exceeds 50 per cent in seven provinces with the remaining three provinces within a hair of 50 per cent. And the federal government has left the door open for additional tax increases, particularly with respect to capital gains, stock options and personal income.

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