Major U.S. tax reforms come with consequences for Canada

Capitol

The United States Congress has adopted a major tax bill that has sweeping implications for the American economy, politics, national debt, and its neighbour, Canada.

The bill that just passed its final vote in the House of Representatives provides the biggest U.S. tax cuts in decades and it already has policy analysts debating whether Canada should respond to retain corporate investment.

It cuts personal taxes for most Americans for a few years, entrenches corporate tax cuts for the long term, gives President Donald Trump his first major legislative win, and it erodes a key pillar of Barack Obama's health reform.

The bill is deeply unpopular for other reasons: It's projected to increase the U.S. national debt by five per cent over a decade; Republicans are already hinting they might need to cut social programs to pay for it and its greatest benefits flow to the wealthy.

It reduces American corporate taxes, which were among the highest in the industrialized world, down to levels equivalent to Canada's when combined with state and provincial rates.

Some observers say Canadian policy-makers will feel pressure to respond, either by reducing corporate rates or using other policy tools to make the country a more attractive investment destination.

In the final debate before passage, one U.S. lawmaker used a famous Canadian example, alluding to Burger King buying Tim Hortons three years ago. While he botched one of the details, misidentifying the industry involved, he expressed hope this reform will stop U.S. companies from shifting their profits abroad.

"We're not gonna have any more pharmaceutical companies buying donut-makers in Canada and move their headquarters to get a lower tax rate," Johnny Isakson said before the final vote in the Senate.

"We're gonna have a lot more companies thinking about becoming donut-makers and doing it right here in the United States ... It's an incentive to stay in America if you're located there, and come to America if you're not."