American Elephants


Oh Canada, Brave Canada, You’re a Pretty Impressive Country Now! by The Elephant's Child

While the United States struggles under low growth and high regulation, our northern neighbor is economically strong.  The Obama administration and its economic advisers have flailed around, completely baffled as to how to get the economy growing again. They might profit by paying attention.

On Thursday, Canadian Prime Minister Stephen Harper announced that he would slash corporate taxes again on January first, cutting the federal business tax burden to just 15%.  Along with tax cuts in the provinces, total taxes for businesses in Canada will drop to 25%, one of the lowest in the G7 and below the OECD average. Beside making it easier for Canadian business to do business, Canada is trying to get the government out of citizens’ lives.

Minister Jim Flaherty said that “Creating jobs and growth is our top priority.  Through our government low-tax plan…we are continuing to send the message that Canada is open for business and the best place to invest.”

“We believe in free trade in Canada, we’re a free-trading nation.  That’s the source of our strength, our quality of life, our economic strength,” Flaherty said last month.

Canada has pursued its competitive advantage — oil. And it did so not through top-down “industrial policy” but by getting government out of the way. Harper has enacted market-friendly regulations to accomplish big things like the Keystone pipeline — and urged President Obama to move forward with it, or Canada would sell its oil to China who is ready and anxious to buy.

These policies have been well-known since the Reagan administration, and practiced successfully in the Coolidge and Kennedy administrations as well. Republicans have urged America to adopt free market, small government policies — because they work.  Canada is proving it once again. But Canada had essentially been a socialist country since the 1950s. Stephen Harper’s moves are a dramatic affirmation of free market economics. A policy that works every time they are tried.

Incomes are rising in Canada, unemployment is two percentage points below the U.S. rate, it’s currency is stronger and it boasts Triple-A sovereign ratings across the board, lowering its cost of credit.

Obama, on the other hand, has expressed his support for the Occupy movement, their demands for an end to capitalism, and an end to free-market economics.  He has approved the Occupy attacks on corporations and banks because it fits with his class warfare campaign strategy. Pity that he is unable to learn from others.  Perhaps Obama will awaken before Canada inks contracts with China for the oil and the jobs they have offered to us, only to be put off — till after the election. That may well be too late.


6 Comments so far
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The U.S. tax system is an abomination. On paper, at least, the United States has among the highest corporate income taxes among the world’s industrialized nations, if not in the world period:

http://www.taxfoundation.org/taxdata/show/23034.html

However, the IRS code (thank you Congress!) is filled with hundreds of specialized tax breaks for corporations, and numerous states are now engaged in a chump’s game to outbid each other with subsidies and tax holidays in order to attract corporate investment. Nobody knows at the end of the day what the actual tax incidence on corporations is. But even if it is lower than the official tables suggest, U.S. corporations must employ legions of lawyers and other advisers just to keep ahead of the game and figure out how to minimize their tax burden.

It would be great (as suggested by Paul Ryan) to eliminate all of the special tax breaks in the tax code, and then simplify and cut the standard rate of corporate income tax drastically. But are Congressional Republicans up to it? Seems that many are scared by Grover Norquist and his ilk, who regard all existing tax breaks as sacrosanct, and the more the better.

As for Canada, like Australia its economy is heavily dependent on the export of natural resources (petroleum, minerals, timber agricultural commodities) — products currently in high demand. So, maybe some of its success can be credited to better policies, some is also due to the structure of its economy in relation to the business cycle. Also, if we are going to mention its better policies, how about those that help keep its violent crime rate well below that of the United States. The cost of trying to avoid crime, and to deal with its aftermath, is a real drain on the American economy.

On the other hand, it irks me to hear Canada trumpeting its free-trade credentials. Ha! Sure it has low import tariffs, but it has loads of local-content obligations, subsidizes many favored industries (including biofuels), and heavily protects sectors such as dairy and egg production, and of course its audio-visual sector.

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Comment by Subsidy Eye

Corporations don’t really pay taxes, their customers do. Governments are reluctant to give up any source of income. The smaller the government that needs to be supported, the smaller the need for increasing taxes. From what I understand, Canada has better banking laws and their banks didn’t get in trouble. Stephen Harper is heading in the right direction, and their economy is in far better shape than ours. Celebrate it. Our economy is not in trouble because of the cost of avoiding crime, but because of the structure of our entitlements. Canada is a much smaller country and is recovering from a long socialist phase. That alone is to be celebrated.

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Comment by The Elephant's Child

Corporations don’t really pay taxes, their customers do.

You refer now to the ultimate incidence of corporate taxes, rather than the formal incidence. If your statement were universally true, then one should not see any difference in investment and production from one tax jurisdiction to another. That is certainly not the case, especially for firms engaged in providing goods and services that are in competition with imports. Within federal countries like the United States It is one reason why, for example, the advent of sales-tax-exempt sales have cut into the market shares of brick-and-mortar stores.

The smaller the government that needs to be supported, the smaller the need for increasing taxes.

Ipso facto. But it also depends on what the government spends its money. According to the Heritage Foundation, the overall tax burden in Canada is 32.2% of GDP, in contrast with the United States, where it is 26.9%.

http://www.heritage.org/Index/Explore.aspx?view=by-variables

Canada spends much less of its wealth on non-productive activities like military defense and dealing with crime. I don’t have statistics on the latter, but a quick search suggests that (based on 13-year-old data) the total annual cost of criminal activity in the United States accounts for around 12% of its GDP. By contrast, the total crime costs in Wales and England is around 6.5%. I would guess that the numbers for Canada are closer to England’s than the USA’s.

Click to access 0_NS4053_1132.pdf

The current government has certainly undertaken important reforms, such as withdrawing old-age pensions from prisoners:

http://news.gc.ca/web/article-eng.do?nid=537039

But at heart its social welfare system is much closer to the European (including a universal health-care system) than the U.S. model, and that is not likely to change soon.

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Comment by Subsidy Eye

“Canada spends much less of its wealth on non-productive activities like military defense and dealing with crime”

Gosh, Subsidy, I wouldn’t call those ‘non-productive’— they certainly produce a societal good. Crime and the laxness of enforcement in Britain is a major problem. They have become so wound up with political correctness, non-judgmentalism, multiculturalism and general niceness that people are not safe. Anyone who defends themselves in their own home may well end up in jail. I keep reading about how useless the police are in Britain. If some of these other countries tended a little more to their own defense, we could spend a little less on our own military.

As far as Canada is concerned, cutting back on a welfare state is really hard, and cutting back on Socialism even more so. It works well to offer goodies to voters to make them dependent on you for the goodies, and very difficult to take the goodies away. Socialized medicine in Canada and Britain is killing people unnecessarily, but they are the old and sick or disabled, and what does that matter if whenever you feel rotten, you can trot off the the clinic and get some attention for free? If your broken arm is taken care of for free, you will assume that when you are actually in hospital, they will care for you nicely and make you well. The incentives, for hospitals, are for less care and less cost. If Stephen Harper is having luck moving away from the welfare state, even a little, I want to encourage it.

It’s very hard to ask people to provide for themselves, be prudent and thrifty and not depend on government except in the last resort; they’d rather be cared for and not have to worry. Works until the care costs too much. I keep a mental image in my mind of refugees with farm wagons or wheelbarrows trying to get out of N.E. Germany ahead of the Red Army, to remind myself that there is no certainty, and bad things can happen.

This is the conundrum that Europe faces. After the devastation of WWII, they were ready to settle for anything that would protect them from another European war, so they settled into a vast welfare state and an unelected, unrepresentative, unaccountable bureaucracy that would take care of them. They got the peaceful part at very high cost, and a very corrupt bunch of “experts” to care for them. Now the rest of the continent that was so determined to restrain Germany’s natural aggression, can’t wait for the Germans to take over and take care of them.

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Comment by The Elephant's Child

Canada & US – The Difference:

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Comment by Subsidy Eye

Gosh, Subsidy, I wouldn’t call those ‘non-productive’— they certainly produce a societal good. Crime and the laxness of enforcement in Britain is a major problem.

You miss my point, Child. Spending on preventing crime may be better than the alternative, but at the end of the day, the more crime there is — like disease — the bigger dead-weight loss on society. Prisons create “employment” of a sort, but clearly the answer to a happy, prosperous society is not to keep expanding prisons and the prison population.

Britain is probably a poor comparison with Canada, as it is indeed more plagued with burglaries and other crimes to property than is Canada. The murder rate is relatively low, however. I suspect that Canada’s national expenditure on preventing, prosecuting, and dealing with the consequences of crime is lower than that of Britain’s, and far lower than that of the United States.

If some of these other countries tended a little more to their own defense, we could spend a little less on our own military.

True. But never underestimate the power of the USA’s military-industrial complex. Don’t take my word for it, take Eisenhower’s.

Socialized medicine in Canada and Britain is killing people unnecessarily, …

Don’t get me started. Yes, the British system is poor, particularly because it does not spend enough on prevention. Canada’s is less bad. And any system can always benefit from reforms. But how many Canadians would trade their health system for America’s? Practically none.

[Europeans] settled into a vast welfare state and an unelected, unrepresentative, unaccountable bureaucracy that would take care of them. They got the peaceful part at very high cost, …

Talk about sweeping generalizations! I have met many bureaucrats from all the European countries, and I would maintain that those in Britain, Ireland, the Scandinavian countries, Germany and The Netherlands are as accountable (and in many cases more professional and honest) than is typically the case in America, especially at the sub-national level.

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Comment by Subsidy Eye




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