Trump tax plan's lack of details has Canada in wait-and-see mode
Proposal would reduce the top U.S. corporate tax rate from 35% to 15%
A large corporate tax cut proposed by U.S. President Donald Trump must still get approval from Congress before it sees the light of day, but it could have impacts on Canada, economists say.
On Wednesday, the Trump administration unveiled a tax revamp proposal that would reduce the top corporate tax rate from 35 per cent to 15 per cent.
If it comes to be, that could bring benefits and disadvantages to Canada, which currently has a federal corporate tax rate of just 15 per cent but provincial add-ons bump that rate up to between 18 and 31 per cent across the country.
"But, of course, the challenge is if we're badly out of step in terms of tax competitiveness that would be a big offset," Porter told CBC News.
Trump's one-page tax proposal only offers recommendations, pointed out Craig Alexander, chief economist at the Conference Board of Canada, adding that Congress has to agree and create the necessary legislation.
"The full extent of the proposals are likely fiscally unaffordable," Alexander said in a release. "Accordingly, more modest tax cuts are likely to be enacted that would pose less of a challenge for Canada.
"The worst case scenario would be large tax cuts paid for by a border adjustment tax, but that does not appear to be a likely outcome," he said.
Tax expert and University of Calgary professor Jack Mintz said if the Trump proposals are enacted it would eliminate the current Canadian tax advantage — roughly four percentage points after including factors such as federal and provincial tax rates — over the United States.
Erasing that advantage could lead some Canadian firms to move investments and profits to the U.S., Mintz told The Canadian Press.
"People are going to take money out of Canada and put it into the U.S.," he said. "And it's not just the American companies. There will also be Canadian companies with operations in the United States.... So, this is a real negative for Canada, no question."
The impact of a corporate tax cut on the U.S. budget deficit could have an impact on what actually gets passed.
Porter said a number of U.S. Congress members are troubled by the size of the deficit, so they have a problem with a pure tax cut. Those members would like to see some kind of revenue measures acting as an offset, which could amount to closing corporate tax loopholes by eliminating some deductions, he said.
"So the effective cut in rates might not be quite as big as the headline move," Porter said.
Ultimately, however, Porter expects there will be a "pretty significant" cut to the corporate tax rate south of the border.
With files from The Canadian Press