One Comment About Taxation – Trump 2.0 – How Should Canada Respond to His Pending Administration’s Tax Policies?

 

On November 5, 2024, like most Canadians, I was glued to the non-stop coverage of the U.S. election results.  My tax brain was going into overdrive thinking about how Canada would respond to a high tax loving Harris win versus a low tax / high tariff Trump win.  When it soon became apparent that Trump was going to win in a landslide, my tax brain started to focus on what this will mean for Canada’s tax landscape.

 

Despite many journalists’ meltdowns and doomsday “predictions” about what Trump 2.0 will mean for Canada, the short story is that we’ve seen part of this tax screenplay before.  During Trump’s first tenure, there was a massive package of U.S. tax cuts and reform rolled out in 2017.  It included significant corporate tax reform, personal tax cuts and estate tax changes.  When announced, many Canadians, including me, were rightly concerned that Canada’s economy would struggle mightily and lose ground from a competitive perspective.

 

Good leadership requires proactively surveying the landscape and making bold, thoughtful decisions based upon conclusions drawn from such analysis.  It also requires responding thoughtfully to competitors and / or threats.  Accordingly, when Trump tax reform was announced and implemented in 2017, many were waiting for our federal government to provide that good leadership and to respond quickly and thoughtfully to ensure our competitive landscape would not be dangerously eroded.  Instead, then Finance Minister Morneau continuously repeated that Canada would not respond to U.S. tax reform in a “knee-jerk” reaction.

 

Eleven months later, in November 2018, the Canadian Department of Finance responded in a non “knee-jerk” fashion.  It was a pathetic response to the major tax competition.  As I wrote in 2018:

 

Eleven months since the US released and effectuated historical tax reform (and eleven months of listening to the Canadian Department of Finance’s standard speaking point stating that they will not respond to US tax reform in a knee-jerk fashion), the government of Canada today provided a non-response. We believe it’s fair to say, mission accomplished; the Government didn’t react at all and certainly there was no actual knee-jerk.

 

The non-response “accomplishes” three things:

1. Provides a full deduction for new purchases of Manufacturing and Processing (“M&P”) equipment and certain new “Green” technology equipment;
2. Increases the first-year deduction for other new depreciable property purchases; and
3. Provides no corporate or personal tax rate reductions.

 

Those measures did not materially move the needle. Six years later, Canada has continued to not respond.  Instead, we have seen a bevy of tax increases (including the ridiculous capital gains inclusion rate increase) and politically motivated interventionist tax changes. Our country’s productivity continues to decline to dangerously low levels and we are not at all tax competitive with the U.S.

 

Trump 2.0 has already provided strong signals as to what he will do regarding tax policy.  For example, he has publicly stated that he is committed to extending certain of the 2017 tax changes that were scheduled to expire at the end of next year and make them permanent.  He has promised significant corporate tax cuts on domestic manufacturing and other tax promises.

 

The eminent economist Jack Mintz wrote in this newspaper last week: “Whether wise or not, many of these changes [the Trump tax changes] would encourage economic growth…A lower corporate income tax rate, deregulation and energy renewal will be magnets for investment from Canada.” 

 

I whole-heartedly agree. And with many successful Canadians and businesses already leaving Canada, that magnet pull needs to be counteracted.

 

Good leadership, therefore, would take a proactive approach.  Instead of simply responding to measures that are sure to come (or even copying such measures), Canada should get ahead of it and implement pro-growth measures.  What could some of those measures be?

 

Well, tax reform is a must. Reform should include measures that can quickly assist in unlocking growth.

 

Corporate tax changes, as I’ve written about before, need to be part of the overall tax reform.  Jack Mintz calls this a “big bang corporate tax reform”.

 

Personal tax cuts across the board are also a must.  Most provinces have combined personal tax rates exceeding 50% at the high end.  Accordingly, we are not competitive with the U.S. and that gap needs to shrink.  Frankly, using Jack’s phraseology, we need “big bang” personal tax reform as well.

 

A simpler tax system and statute are also a must.

 

And to help pay for the necessary tax cuts and reform, deep and significant government expenditure reductions would need to be done.

 

Given Canada’s federal government has shown an indifference to providing good tax leadership, it is highly possible that we’ll see a repeat of “not responding in a knee-jerk fashion” version 2.  If so, then a lot of the doomsday predictions may come to fruition and our country’s productivity will continue to suffer and decline. Put me on record that our federal government does not have it in them to change course and provide good tax leadership.

 

Instead, it will require a government change that only an election can provide.  The Conservative Party has announced earlier this year that, if elected, if would implement a Tax Reform Task Force within 60 days of getting elected to implement lower taxes on work and production, simplify tax rules, cut corporate welfare and reduce the share of taxes paid by the poor and so-called middle class. This is exactly what our country needs to respond to Trump 2.0 and show great leadership.

 

With the federal election scheduled to happen in October 2025 (unless somehow, we are fortunate enough to get an earlier election), our current government still has lots of time to “not respond in a knee-jerk fashion”. One can only hope that such a non-response will also not include continued domestic policies that are damaging and simply political.

 

Canadians can ill-afford to have our tax competitiveness decline further.  And to not respond in a non-knee jerk fashion.

 

One Comment About Leadership – Leaders, Do Yourself a Favor and Be Transparent

 

As regular readers know, one of my favourite leadership gurus is Lee Brower.  He releases a weekly leadership video that he calls “Meaningful Monday”.  It’s a weekly 5 minute piece and I look forward to it every Monday.  This past Monday’s was, as usual, a good reminder of how important it is for leaders to be transparent.

 

Lee tells the story of a recent plane trip that had nothing but troubles.  A usually simple flight became a series of delays, running out of water and food on the plane.  But, instead of the expected grumbles and impatience from the passengers, Lee tells the viewers that it was not that way at all.  Instead, the passengers were empathetic.  Why?  Because the pilot was genuinely transparent about the situation and gave the passengers regular updates.  At one point, the pilot came out of the cockpit and gave an update.  When finished, he went down the aisle so that he could answer any questions the passengers might have.

 

Ladies and gentlemen, the example of the pilot that Lee shared in his weekly video is a great example of leadership.  Transparent honesty will get you a long way.  Of course, there are often times in a leader’s day that he / she will need to keep things confidential and / or non-vulnerable but being transparent with your audience goes a long way to ensuring trust and empathy.

 

For me, one of my “Leadership Styles” is “transparent honesty in everything I do”. I documented that over a dozen years ago when I was purposely documenting my leadership style, leadership legacy, leadership brand and leadership culture.  Doing that exercise was a difficult one that took me four solid days of thinking, brainstorming and writing.  Today, the documentation of that leadership style, legacy, brand and culture sits framed behind my office desk so that it reminds me daily of how I need to continuously work on being a better leader and achieve those leadership goals.

 

Leaders, are you being transparent?

 

One Comment About Economics: Parliamentary Budget Officer Report on the Recent Amendments to the Alternative Minimum Tax

 

The Parliamentary Budget Officer released its latest report last week on what the recent amendments to the Alternative Minimum Tax will cost Canada in lost taxation revenues.  It estimates that the recent amendments to allow 80% of charitable credits against the AMT will cost Canada $598M in taxation revenues over the next 5 years.

 

I’ve been very vocal about the AMT.  For example, I recently wrote a piece both in the Financial Post and in this newsletter that the AMT should be abolished.  Why?  Because the AMT is a refundable tax.  If you pay it, you are able to get it back in the seven subsequent taxation years if you are not subject to AMT in those years.  Accordingly, it is very rare for affected taxpayers not to receive a future AMT refund.  Given this, the AMT system is a “smoke and mirrors” unnecessary complexity in the Act.

 

Given the above, I’d love to see statistics, if they exist since I can’t find any, that show how much “real” AMT revenues are permanently collected by the government of Canada.  My guess is that it would be tiny.  And the recent amendments won’t cost Canada anything despite the PBO report.

 

Again, it’s time for the AMT to disappear for the betterment of Canada.

 

Bonus Comment – Quote From Howard Schultz – American Businessman and Former CEO of Starbucks –– About Leadership Transparency

 

“I think the currency of leadership is transparency.  You’ve got to be truthful.  I don’t think you should be vulnerable every day, but there are moments when you’ve got to share your soul and conscience with people and show them who you are, and not be afraid of it.”

 

Yep, totally agree.  Leaders, again, are you being transparent?

 

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