The incoming Trump administration and the US Congress are working on a “border adjustment tax.”
The tax would represent a big shift in how America’s corporations are taxed.
- It would lower the US Corporate Tax rate from 35% to 20% for domestic profits.
- There would be no reduction for profits made outside the country.
This will act as a strong incentive for American companies to move production and offices back into the United States, or to expand in the United States instead of expanding elsewhere.
So, what does this mean for Canada?
It all depends on whether Canada gets any sort of exemption from the tax. In many circumstances, the US treats Canada more like a part of their own economy than a foreign nation.
If there is an exemption granted to Canada, the border tax won’t mean much here.
However, if there is no exemption, Canada will have to face a challenging situation. American automakers could be tempted to reduce production in Canada and move it to the states. That could be repeated in numerous industries, drawing jobs and investment away from Canada.
5 Ways To Protect The Canadian Economy
Despite the potential challenge of an American border adjustment tax, there are things we can do to turn it into an opportunity to strengthen our Canadian domestic economy.
Here are five things we can do:
- Scrap the carbon tax: We simply can’t afford to make everything more expensive when the US is reducing the cost of doing business. We need to scrap the carbon tax and give our economy the chance to compete.
- Remove provincial trade barriers: It’s one thing to reject free trade with a country like China that doesn’t have our interests in mind. But when it comes to the trade barriers within our own country, it’s time to remove them. Removing inter-provincial trade barriers will create a more diverse and competitive domestic economy.
- Cut taxes for the middle class: To deal with the border adjustment tax, we need to increase demand within our own country. Cutting taxes for the middle class is the best way to do that. A big tax cut – far bigger than anything done by recent governments, would be a big stimulus for the economy.
- Build up and expand our military: Our military is dangerously underfunded, putting our nation at risk. Initiating a Canadian Military build up would boost manufacturing and scientific innovation, create jobs for those entering national service, and increase our leverage. It would be a win-win that would grow our economy, and help keep our nation safe.
- Incentivize domestic production: America is not the only nation that can make it cheaper to produce in their own country. Canada could easily bring in tax breaks to make it more profitable to build and expand in Canada.
The five ideas mentioned above would help us weather the economic storm of a US border adjustment tax. It would also help transform our economy into one that is stronger domestically, and less vulnerable to a chaotic world.
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