How should Canada deal with U.S. tax cuts?

While they have slightly differing views on the landmark tax cuts just adopted in the U.S., and their potential effect on Canada, some of the country’s leading fiscal-policy experts agree on one thing.

In short: Don’t expect Canada to engage in a corporatetax-cut-war with the U.S. That’s according to three prominent fiscal experts as the U.S. passed a bill that will make it cheaper to do business down south.

Kevin Page, Jack Mintz, and Kevin Milligan all agreed Canada has various policy tools to respond. They expressed doubt the likeliest tool involves taking a chainsaw to corporate tax rates.

The University of Calgary’s Mintz believes Canada should worry about its neighbour’s tax reform; he’s expressed it in National Post pieces with titles like, “Trump’s tax tsunami is about to wallop Canadian jobs and investment.”

His view is that for several decades Canada had two business advantages: lower corporate taxes, and free trade. Now the taxes are about equal, and free trade is in jeopardy. He said Canadian businesses also face new challenges, like carbon taxes. But he said policy-makers can respond with a variety of solutions. One is tax rates. Others include simplifying regulation, or designing tax policy to benefit investment, say, by steering the proceeds of carbon taxes back to businesses.

Page, Canada’s first parliamentary budget officer, also doubts copycat tax cuts are coming.“Tax reform pressures will likely build in Canada over the next few years leading up to the 2019 elections but it is more likely to have a broader agenda than tax reductions, including fairness, sustainability, growth, (the) environment.”

He said Canada might even draw some early benefit from the U.S. tax bill. That’s because economic growth in the U.S. tends to spill into Canada.

UBC economist Kevin Milligan said he’s not nearly as concerned about this bill as he would be if it gave U.S. businesses a permanent tax advantage of, say, five percentage points, rather than simply putting the countries at similar rates.

“Then we’d be in a world where we’d be really, perhaps, in trouble — where you’d see firms wanting … to shift profits out of Canada. The fact that we’re tied, at about the same rate, means there’s no incentive to move profit,” he said.