Thursday, December 1, 2011

Canada Continues to Pwn the United States - to US Companies' and Workers' Serious Detriment

Readers of this blog will know that I've long celebrated Canada's commitment to lowering government-induced costs on domestic industries in order to boost their global competitiveness.  The Canadian government has been reducing corporate taxes and tariffs on imports of industrial inputs for a couple years now, and a recent Reuters article indicates that the Canadians have no intention of reversing course.  In fact, they're going full steam ahead and, in the process, making the United States look pretty pathetic:
Canadian Finance Minister Jim Flaherty said on Sunday the government would eliminate tariffs on dozens more products used by Canadian manufacturers, aiming to lower their costs and encourage more hiring.

The initiative would scrap custom duties on 70 items used by businesses in sectors such as food processing, furniture and transportation equipment.

Flaherty, who estimated the tariff cuts would save Canadian businesses C$32 million ($30.5 million) a year, said the cuts were part of the Conservative government's overall free trade policy.

"We believe in free trade in Canada," Flaherty said on CTV's "Question Period" program. "Some of these old-fashioned tariffs get in the way. So we're getting rid of them."

As part of its Economic Action Plan to pull Canada through the global slowdown of 2008-09, the government has eliminated more than 1,800 tariff items, providing about C$435 million a year in tariff relief. Its stated goal is to make Canada a tariff-free zone for manufacturers by 2015.
AEI's Mark Perry has some great commentary on this news, and I highly recommend that you check out the whole thing.  His bottom line: "Even though we usually think of increasing exports as the route to increased domestic manufacturing output and employment, Canada's trade policy of reducing tariffs for its manufacturing sector highlights the important contribution of imports to domestic manufacturing."

Meanwhile, the United States continues to impose high tariffs on many of these same products, thus putting US companies at a distinct disadvantage vis-a-vis their Canadian counterparts.  Further exacerbating this disadvantage is our horrendous corporate tax burden, as made distressingly clear by the latest World Bank report Paying Taxes.  The WSJ comments:
A report released this month exposes some unpleasant truths about America's uncompetitive system for taxing businesses.

The Paying Taxes 2012 study, produced by the World Bank, International Finance Corp. and PricewaterhouseCoopers, ranks countries based on the ease or difficulty of paying business taxes. The Maldives came in first, followed by Qatar and Hong Kong. America clocks in at 69 out of 183 countries, down one spot from last year and 23 places shy of its finish in 2009...

The authors note that many countries have cut tax rates for businesses in recent years—an average of 8.5 percentage points since 2006. Three of the top five economies in the table—Hong Kong, Singapore and Ireland—offer businesses generally flat profit taxes. America is behind the curve. Its total tax rate of 46.7% (factoring in Social Security and other taxes on top of the 35% rate on corporate income) places the U.S. at an abysmal 131 in the tax-rate ranking, behind the likes of the U.K., Finland, Norway, Switzerland and Ghana.

The biggest changes in the rankings come from steps to streamline taxation. South Korea climbed five places in one year, to 44, after combining several labor-related taxes onto one form and one payment. In all, 123 out of 183 economies in the survey have made at least some tax improvements since 2006.

America's decline in the rankings is attributable to tax-policy stagnation as other countries reform their own revenue codes. Already a notably complex system with the second-highest corporate tax rate in the world after Japan, the U.S. tax code appears ever more cumbersome compared to countries that grow simpler and cheaper by the year. The Netherlands has improved only two spots since the 2008 survey, to 34, even with important reforms that cut the hours needed for compliance to 127 from 250 and the total tax rate to 40.5% from above 45%. Hong Kong won high marks in part for its flat, low-rate corporate taxes and partly for an easy-to-use electronic filing system.
One of the countries cutting business taxes over the last few years is - you guessed it - Canada.  As I noted in this 2010 FoxNews op-ed:
Canada didn’t stop with tariffs. It also slashed the corporate tax rate to 18 percent. And the rate will fall farther -- to 16.5 percent next year and to 15 percent a year later. The Harper government reasoned that such tax cuts would help make Canada one of the world’s most attractive destinations for international business investment. And they certainly have a point: Canada’s 2010 marginal effective tax rate is more than 16 percentage points lower than the United States’ 34.2 percent rate and two points below the OECD average.
The aforementioned World Bank report rewards Canada for these and other corporate improvements by raising its ranking from 28th in 2009 to an impressive 11th this year, noting that "Canada made paying taxes easier and less costly for companies by reducing profit tax rates, eliminating the Ontario capital tax and harmonising sales taxes."  As the WSJ editorial notes above, the United States dropped from an already-bad 46th to an abysmal 69th over the same period.

So, good for Canada.  Really, really bad for American businesses and workers.

Isn't it about time we got with the program?

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