Obama vs. Ontario

The left-of-center government in Ontario, Canada’s largest province, is enacting dramatic corporate income tax (CIT) cuts. It announced last week that it is phasing in a reduction of the provincial CIT to 10 percent, which is paid on top of the federal rate that itself is falling to 15 percent. The combined rate of 25 percent will be far lower than the average U.S. federal/state rate of 40 percent.

The province is also eliminating sales taxes on business purchases, which will substantially reduce effective business tax rates.

As the Canadian Press reports, the cuts will make Ontario’s business tax rates much “lower than the average U.S. Great Lake state, considered Ontario’s main competitors for jobs and investment.”

Big Three auto companies, for example, may decide to close their U.S. plants over their numerous Ontario plants if they conclude that there will be a long-term Canadian tax advantage.

For its part, the Obama administration’s budget proposed a range of higher taxes on businesses, going in the exact opposite direction of virtually all other advanced economies.