The personal liberties, entrepreneurial opportunities and professional sports franchises of the United States notwithstanding, there’s a lot to admire about Canada.
In fact, Canada has ranked No. 1 for four out of the last six years in a list of the top 20 most admired countries in the world compiled by the Reputation Institute. Canada fares well for what’s perceived as its natural beauty, friendly and welcoming people and appealing lifestyle. Go ahead and admit it: Those red uniforms the Royal Canadian Mounted Police wear are pretty cool, too.
But there’s something else for which to envy Canada, and that’s a federal corporate tax rate fully 20 points lower than that assessed in the United States. As lawmakers — not to mention presidential candidates — debate corporate taxes and tax reform, it might be a good time to take a closer look at what’s going on north of the border.
The Tax Foundation, a nonprofit, nonpartisan tax research organization based in Washington, D.C., did just that in analyzing the potential effects of lowering the U.S. corporate tax rate from 35 percent to the average rate of 25 percent assessed by other countries in the Organization for Economic Cooperation and Development. The Tax Foundation also looked at what might happen if the U.S. were to assess the 20 percent corporate tax rate of the United Kingdom — or 15 percent rate of Canada.
According to the Tax Foundation, reducing the corporate tax rate to 25 percent would increase gross domestic product, the broad measure of goods and services produced in the country, by 2.3 percent. A cut to 20 percent would boost GDP by an estimated 3.3 percent. And matching the Canadian rate of 15 percent would bolster GDP by 4.3 percent over the long term. A large driver of this kind of growth would be a reduction in the cost of capital.
A lower tax rate also would address another issue, and that’s U.S. corporations shifting operations abroad to take advantage of the lower rates assessed elsewhere.
A growing U.S. economy would, in turn, encourage employers to hire more people and pay higher wages, the Tax Foundation concluded. Depending on the size of the corporate tax rate reduction, companies would add 425,000 to 613,000 new jobs to payrolls. Wages would increase by 1.9 percent to 3.6 percent.
Lower corporate taxes would, of course, initially lower the amount of revenue that comes into the federal treasury. But counting the effects of economic growth, the costs would diminish over time. Ultimately, the benefits to the economy and workers could outweigh the cost to the treasury.
The United States remains a great place to live and do business. But there’s potential through tax reform to make our country an even greater place to live and do business.