While the federal government touts coming corporate cuts that take effect in 2012 as more fuel to power the Canadian economy, others say such measures further weaken the government's financial ability to run the country.
Finance Minister Jim Flaherty's office issued a release Thursday highlighting certain aspects of the government's multi-year plan that sees the federal portion of corporate income tax falling to 15% in the new year. That's down from 16.5% this year and 22.12% in 2007.
Flaherty's office said with provinces such as Ontario, British Columbia, Alberta and New Brunswick having implemented or planned corporate tax rates of 10%, most corporate tax in Canada will be taxed at an overall rate of 25% by July 2013.
In the U.S., the federal portion of corporate income, before state portions are applied, is 35%.
"Through our government's low-tax plan for jobs and growth, we are continuing to send the message that Canada is open for business and the best place to invest," Flaherty said in a statement.
The government also said, starting in 2012, all provinces will have eliminated general capital taxes, or levies applied to a company's financial assets. The federal government eliminated its portion of capital taxes in 2006 and then encouraged provinces to do the same. Hugh Mackenzie, a research associate with the Canadian Centre for Policy Alternatives, argued that there is little evidence that corporate tax cuts have stimulated economic activity.
"In fact, the evidence suggests that the investment incentives that have been delivered through the tax system in the form of lower tax rates have simply gone into corporate cash flow and really had no economic benefit."
Mackenzie added that agreements between Canada and the U.S. require that American companies must pay federal and state governments in their home country the difference between any lower income-tax rate they are paying on their Canadian operations and what they would pay at home.
"When we reduce our tax rates below those of the United States, what we end up doing is transferring money to the U.S. Treasury," he said.
Mackenzie acknowledged that the Canadian economy has performed better than other industrialized countries, such as the U.S., in recent years. But he credited that to tighter regulations in the banking sector -- in effect before the Harper government came to power in 2006 -- rather than tax cuts.
