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Bugs





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PostPosted: Tue Dec 19, 2017 11:04 pm    Post subject: Trump's tax tsunami is about to wallop Canada Reply with quote

Quote:
Trump’s tax tsunami is about to wallop Canadian jobs and investment
Jack Mintz: Canada’s competitive position is about to get rocked, making it harder for Canadian governments to push costs onto businesses through higher levies and regulations

Jack M. Mintz
December 19, 2017
9:37 AM EST

A tax tsunami is set to wallop the global economy this week as the U.S. proceeds with its most extensive tax package since 1986. U.S. tax reform will have an immense impact on the global economy, not just in terms of investment but also corporate bond flows and the distribution of government tax revenues. As America’s largest trading partner, Canada’s economy is about to get heavily side-swiped.'[Emphasis added]

Late last Friday, a congressional conference committee released its final report outlining the version of the U.S. Tax Cuts and Jobs Act that compromises between the Senate’s plan and the House of Representatives’ proposals. Both houses will likely pass the compromise this week. President Donald Trump is expected to sign it, given the importance of this tax reform to his overall economic agenda. The rest of the world is going to feel the impact. As of Jan. 1, 2018, the U.S. is set to move from having one of the highest tax burdens on corporate investment all the way down to the middle of pack.

The U.S. bill contains a large number of provisions that will affect the global economy, but the most important ones are the reduction in the corporate income-tax rate, the ability to expense investments in machinery and equipment (rather than amortize them), new limitations on the deduction of interest expense, and the adoption of new international tax rules that will be more similar to OECD countries.

Under the new version of the bill, the U.S. federal corporate income-tax rate will fall dramatically from 35 to 21 per cent beginning Jan. 1, 2018. Taking into account state income taxes (as shown in the accompanying table), the new U.S. corporate income-tax rate will be 26 per cent, not much higher than the world average of 24.7 per cent — and almost a point lower than Canada’s rate.[Emphasis added]

Further, the U.S. tax burden on domestic investment will dramatically decline well below many countries and slightly less than in Canada, especially in the next five years.

The lower corporate income-tax rate, and allowing expensing rather than amortization of machinery and equipment, will boost productivity as American business retool operations with digitization, artificial intelligence, robotics and big data processes. The growing U.S. economy will create more demand for imported goods and services, but the U.S. is also turning itself into a more powerful magnet for corporate investment that might have gone elsewhere.[Emphasis added]

The U.S. tax bill also contains some important limitations on the deductibility of interest expense for corporations: specifically, any interest expenses in excess of 30 per cent of adjusted profits will not be deductible. That will see multinationals moving their debt out of the U.S. and onto their books in foreign jurisdictions. Canada will bear some of this cost with falling corporate tax revenues.

The new dividend exemption regime saves multinationals from paying U.S. corporate tax on foreign profits brought back to the U.S. Some US$2.5 trillion in profits belonging to American firms currently sits parked in foreign subsidiaries. That can be brought home to boost investment and equity values. So we’ll see significant dividend flows out of foreign countries to the U.S. just as corporate debt is flowing the other way, from the U.S. to other countries. Overall, the reform will likely support a stronger U.S. dollar.

The improving U.S. economy will be further charged by personal tax cuts and a somewhat wider trade deficit. It all suggests the U.S. will see higher interest rates down the road. All of this is going to put pressure on a depreciating Canadian dollar.
[Emphasis added]
Canada’s competitive position is about to get rocked, making it harder for Canadian governments to push costs onto businesses through higher levies and regulations. Federal and provincial authorities will need to change course. If politicians sit on their hands, the private sector won’t: Canadians will see investment, jobs and profits flowing to the States.
http://business.financialpost......investment
Bugs





Joined: 16 Dec 2009
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PostPosted: Tue Dec 19, 2017 11:36 pm    Post subject: Reply with quote

Conrad Black has some similar thoughts ...

http://nationalpost.com/opinio.....to-keep-up

The trubble is ... all of Trump's changes challenge the very basis of the Trudeau Liberals way of approaching the world. We will get in trouble, and the Liberals will try buy their way out of it. Disaster ...
cosmostein





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PostPosted: Wed Dec 20, 2017 10:31 am    Post subject: Reply with quote

The Corporate rate cut brings the US rate largely in line with Canada when you factor in the Provincial / State rates.

The huge difference now is how much less you penalize the owners of those businesses from paying themselves out
Bugs





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PostPosted: Wed Dec 20, 2017 2:29 pm    Post subject: Reply with quote

Also on the depreciation rules for new equipment. I am not sure I heard right, but I thought I heard they were going to allow new equipment to be treated as an expense in the current year, rather than depreciated over 2 to 20 years, depending ...

It isn't just that our corporate tax rates balance out. It's that we now lose on all the other factors, except possibly the health care expense ...

Not only that, but the course of the government is exactly wrong in this environment. They are embarked on increasing both taxes and debt in an effort to get a more dynamic economy going. On top of that, they've taken up arms with Mexico to make Trump back down on NAFTA, not understanding who was the dog and who was the tail. Their demands -- gender laws akin to Canada's, for example -- were arrogant intrusions that could not be justified in terms of trade. They're just a bunch of bunglers.

Let's see how Andrew capitalizes on this moment, remembering this is the family time of the year, the holiday season, and people generally put politics aside. We should give him until early January, and then judge. And equally, we should keep an eye on Jagmeet, to see if he does any better.
cosmostein





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PostPosted: Wed Dec 27, 2017 4:14 pm    Post subject: Reply with quote

Bugs wrote:
Also on the depreciation rules for new equipment. I am not sure I heard right, but I thought I heard they were going to allow new equipment to be treated as an expense in the current year, rather than depreciated over 2 to 20 years, depending ...


If you can write off equipment against revenue (which would be massive) I would imagine there would be some restrictions on what qualifies as equipment and how much in relation to your revenue you can write down.

It will make setting up shop and making a huge front-end buy very appealing, but there are also benefits to the "slow burn" that writing down depreciation offers

Bugs wrote:
It isn't just that our corporate tax rates balance out. It's that we now lose on all the other factors, except possibly the health care expense ...


In theory;
Its still cheaper to do business (solely by tax rate) in most Canadian Provinces.

They are paying our labour CDN funds on the back of US funds so you have a built in discount over and above the Healthcare issue.

However, now its far better to have your money in the US and to domicile in the US because the Individual Rates (which have always been far better than Canada) are now far far better and if you are an equity holder in a firm and you want to take some of that profit out its far cheaper to do so with your firm and yourself domiciled in the US.

Imagine then if you are based in Florida, Nevada, Texas, etc where there is no State Income Tax.

Business expansion aside, this plan seems to be just as much about bringing money home as anything else.
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Trump's tax tsunami is about to wallop Canada

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