Munir Sheikh, former head of Statistics Canada and of tax policy at Finance Canada, has an op-ed in today’s Globe: “A Canada-U.S. tax gap means a Canada-U.S. tax transfer.”
As he notes, “any U.S. citizen, resident or company earning income in Canada is subject to U.S. tax, with a credit for Canadian tax paid or accrued.” So, slashing Canada’s corporate tax rate further below the American rate causes U.S. companies to pay more American tax on their Canadian profits.
This analysis should be familiar to this blog’s readers. My 2009 paper estimated that Jim Flaherty’s target of a 25% combined federal-provincial corporate tax rate would transfer between $4 billion and $6 billion annually from Canadian governments to the U.S. treasury. These figures line up rather well with Sheikh’s numbers.
Using a quite different approach, he estimates “a potential $500-million annual tax transfer from Canada to the U.S. for every point reduction in the Canadian tax rate.” Compared to the 35% American federal rate, a 25% Canadian rate would create a ten-point gap, implying an annual treasury transfer of $5 billion.
Of course, these figures are estimates. Both Sheikh and I conclude that further research is warranted. However, the treasury transfer effect is another gaping hole in the feeble case for Canadian corporate tax cuts.
- Don’t Privatize ISC (May 16th, 2013)
- Provincial Corporate Taxes: A 12% Floor? (April 23rd, 2013)
- Fairness by design: a framework for tax reform in Canada (February 14th, 2013)
- Effective Corporate Tax Rate Falling (October 18th, 2012)
- Do Corporate Tax Cuts Really Pay For Themselves? (September 13th, 2012)