Taking a BAT to Canadian jobs

When i t comes to trade, Presidentelect Donald Trump does not seem all that concerned about Canada. That doesn’t mean Canadian exporters should not be concerned about him.

While we will likely escape the targeted tariffs he plans against countries like Mexico and China, a revolutionary Republican tax proposal could damage Canada more than any other nation on earth.

It is called the Border Adjusted Tax (or BAT). It would mean American companies could no longer write-off the cost of imported goods. Only the costs of Americanproduced goods would be deductible. To simplify, a gift store in Maine buys a bottle of Quebec maple syrup for $ 1 and sells it for $ 3. Under the status quo, the store can write off the dollar spent buying the Canadian product, so it would pay business tax only on the remaining $2 in profit. Under the BAT, the company could not write- off goods from abroad, so it would pay corporate tax on all $3, even though it only made a profit of $2.

If the retailer bought the maple syrup from an American sugar bush, on the other hand, it could deduct the cost. For the cabane à sucre in Quebec to compete, it would need to sell its syrup at a big enough discount to compensate for the tax advantage its American competitors would enjoy. All other things equal, that discount would be around 15 per cent, because that is the business tax rate Trump says he will establish.

Unfortunately, we are not just talking about maple syrup. Canada exported almost $ 400 billion in goods to the U.S. in 2015, which works out to almost a fifth of our gross domestic product.

The BAT has the backing of two congressmen with the power to do something about it: House of Representatives Speaker Paul Ryan and Ways and Means Committee Chairman Kevin Brady.

President- elect Trump has not stated a definitive position on it, but it lines up perfectly with his plan to cut imports and boost domestic production. With Republican domination in the House, Senate, and Oval Office, there is a real chance it will happen.

But it gets worse. The BAT would eliminate all U. S. corporate taxes on export in- come, so earnings from sales into Canada would be taxfree for American companies. Meanwhile, Canadian companies selling goods at home will continue to pay roughly 26 per cent in corporate tax, giving American businesses an advantage in our home market.

Economists predict that reduced imports and in- creased exports would result in a rising American dollar, which would neutralize the effect of the BAT policy. That is the theory anyway. Even if it comes true, it would take time, while Canadian exporters lose business and workers lose jobs.

Our problems do not stop there. The Republican tax plan would also allow American businesses to write- off a capital investment in the year it was made, rather than gradually over the life of an asset, as is required of most industries in Canada. Imagine that an American company and a Canadian company each buy identical tractors on the same day. The American business writes it off immediately and can reinvest the tax savings the same year, while the Canadian competitor waits for savings to dribble back over decades. Who has the upper hand?

Then there i s Trump’s plan to cut corporate tax from 35 per cent to 15 per cent, which is 10 per cent lower than the federal-provincial corporate tax rate in Canada. Finally, American businesses will not have to pay the new Liberal carbon tax and payroll taxes, nor the exorbitant electricity costs the Ontario Liberal government has imposed in Canada’s largest province.

Even without Trump, Canadian exports are already in trouble. Between October 2015 and October 2016 Canada lost 19,600 natural resources jobs and 25,400 manufacturing jobs, despite a low dollar.

We now risk falling even further behind America with its pro- business president and free enterprise Congress. Bottom line: We have gotten used to competing with an over- leveraged, over- taxed and over-regulated American economy. Now, American capitalism may be returning with a vengeance. It will be hungry and fierce, so we cannot afford to be fat and lazy — or Americans will eat us for lunch.

Pierre Poilievre is the member of Parliament for Carleton and the Official Opposition critic for Work and Opportunity.

A REVOLUTIONARY REPUBLICAN TAX PROPOSAL COULD DAMAGE CANADA MORE THAN ANY OTHER NATION ON EARTH.