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Canada-U.S. Tax Comparisons.

This book contains 12 papers written by prominent public finance scholars from Canada and the U.S. whose goal was "to explore jointly the similarities and differences in tax structures, the reasons for any differences identified, the contrasting experiences with tax reform (especially in the 1980s), and whether the tax systems are converging or diverging and why."

The authors are commended for undertaking this comparative study. Their comments and conclusions are current, comprehensive and well footnoted. The economic models or formulas developed in some of the papers, however, are of more interest to readers with an economic academic background. Also, most papers contain several useful comparative tables and charts. Unfortunately the index does not include references to the charts and tables found in the papers.

The first paper, Pressures for the Harmonization of Income Taxation between Canada and the United States, suggests that economic forces, specifically the mobility of capital, will tend to harmonize Canadian and U.S. corporate tax systems and that the immobility of labour will cause personal tax systems to vary between the countries. The paper includes a good summary and comparisons of U.S. and Canadian taxes.

Another author suggests that the increasing economic integration of Canada and the U.S. will lead more to a benefit tax system, where the tax paid equals the cost imposed on the public sector. Consumption taxes, value added taxes (VAT) or user fees are signs of the evolution to a benefit tax system.

The third paper describes, compares and charts income security programs--both those provided through the tax system and those independent of it. The paper notes that the income security programs' provisions in Canada and the U.S. are complex and dissimilar; therefore, harmonization is likely only in specific markets or industries.

Another paper, looking at tax base, tax rates and tax mix annually and over a longer time frame, concludes that personal income taxes are the most progressive tax, whether viewed annually or over a lifetime, while general sales taxes are less regressive when viewed over a lifetime rather than annually. Accordingly, Canada's tax system is more progressive because of its continued reliance on personal income taxes and on sales taxes, which are less regressive over a lifetime than U.S. social insurance contributions.

Two papers examine the cost of capital. The first tries to identify the distortions on the cost of capital caused by the tax systems in Canada and the U.S., noting that tax reforms in both countries have resulted in the convergence of effective corporate marginal tax rates. The second defines and calculates the cost of capital in Canada, the U.S. and Japan. It concludes that the cost of capital in Canada and the U.S. is similar and is not distorted by tax and financial concerns and that Japan has a large cost of capital advantage.

The Impact of U.S. Tax Reform on Canadian Stock Prices quantitatively assesses how U.S. tax reform has affected Canadian business via the spill-over effect of taxes, concluding that there was no definitive cross-border spill-over effect probably because U.S. tax reform had little impact on U.S. stock markets.

Tax Aspects of Policy toward Aging Populations, develops a model to simulate how demographics and fiscal structure are likely to interact over the coming decades to influence the rate of capital accumulation, projected savings and patterns of capital flows. The paper predicts a rise in Canadian payroll taxes and a drop in the national savings rate compared to the U.S. Another paper develops a model to study the impact of tax policy on the level of housing investment.

What Can the United States Learn from the Canadian Sales Tax Debate? describes the basic mechanics and issues regarding the recent Canadian sales tax experience and recommends that the U.S. not adopt the Canadian model as a federal sales tax; the author favours the New Zealand VAT.

A paper focusing on provincial/state and local tax systems and the degree of harmonization offers tables comparing the key features and relative importance of various subnational tax systems in Canada and the U.S. It notes that subnational taxes are almost twice as high in Canada and that the relative importance of the three main subnational taxes--personal income tax, retail sales tax and property taxes--varies.

The final paper's authors speculate about future trends in tax policy with some interesting comments regarding the introduction of a VAT in the U.S. and a flat tax on income withheld at source replacing personal income taxes.

Canada-U.S. Tax Comparisons is available for $55, plus $3 shipping and handling, from the University of Chicago Press, 11030 S. Langley Avenue, Chicago, IL 60628 (800/621-2736).
COPYRIGHT 1993 Government Finance Officers Association
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1993 Gale, Cengage Learning. All rights reserved.

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Author:Ambos, Paul
Publication:Government Finance Review
Article Type:Book Review
Date:Aug 1, 1993
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