Canada: Witness for Pro-Growth Tax Reform

That tax reform will greatly benefit American workers and companies for years to come is, to the U.S. Chamber of Commerce, fairly obvious. Reducing business tax rates, improving capital cost recovery, and adopting a much more competitive international tax regime were precisely the right themes for pro-growth tax reform.

Even so, American opinions were and still are deeply divided on tax reform’s benefits, and not always solely due to politics. In fact, the lineage of this dispute goes back at least 50 years and should not surprise anyone today because economic philosophies reflect political ideologies. Nor have economists been much help in clearing up the confusion.

Tax reform certainly had some notable and welcome immediate effects. Even opponents had to acknowledge the proliferation of stories about unexpected bonuses, higher wages, and other business responses. And while these actions were appreciated, they didn’t tell us much about the economic growth. The true pro-growth nature of tax reform was primarily about improving investment incentives which would then result over time in increased business investment resulting in more job growth, higher wages, and all the rest.

One place to look for evidence of economic growth is, surprisingly, outside the United States. Specifically, if tax reform really meant U.S. workers and U.S. companies were going to be notably stronger international competitors going forward, then those nations paying attention and able to do so would respond with fundamental pro-growth policies of their own. Tax reform’s opponents would expect no such responses.

First out of the box, Canada. As one report noted, “The Canadian government will try to address the competitiveness problems faced by the national business with a budget update in response to U.S. tax reform (italics added).”

The report continued that Canadian Finance Minister Bill Morneau “was focusing on lowering the cost of new investments.” Remember the core pro-growth aspect of the U.S. tax reform was lowering the cost of new investments, which the Canadians now feel compelled to copy.

Canada in this case is declaring itself an active, independent witness in the ongoing U.S. debate. If U.S. tax reform doesn’t make U.S. companies and businesses more competitive, why does Canada feel it has to respond? Because they recognize the benefits of pro-growth tax policy. It will be interesting to hear how tax reform’s opponents try to spin this one.

About the authors

J.D. Foster

Dr. J.D. Foster is the former senior vice president, Economic Policy Division, and former chief economist at the U.S. Chamber of Commerce. He explores and explains developments in the U.S. and global economies.