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Canada doesn’t often get mentioned in political debates in the United States, but our northern neighbor had a cameo in the vice presidential debate, cited as a bastion of low taxes.
Seeking to draw a contrast with the tax policies of President Barack Obama, Paul Ryan, a Wisconsin native, said, "Where I come from, overseas, which is Lake Superior — the Canadians — they drop their tax rates to 15 percent. The average tax rate on businesses in the industrialized world is 25 percent."
We wondered whether Canada was really as much of a low-tax haven as Ryan indicated.
Canadian corporate taxes
We found two measurements of Canada's corporate tax rate from the Organization for Economic Cooperation and Development, a group of advanced industrialized nations. Over the past 15 years, the trendline for both has been consistently downward. Since 1998, the central government corporate rate has declined from 29.12 percent to 15 percent today; while the combination of the central and provincial corporate tax rates has fallen from 42.94 percent to 26.1 percent today.
So Ryan is right that Canada’s national rate was recently lowered to 15 percent -- the culmination of policies put forward by both center-left prime ministers Jean Chretien and Paul Martin and current center-right prime minister Stephen Harper, who took office in 2006. Small businesses today have a special, lower rate of 11 percent.
Still, it’s worth noting that when you take into account average provincial tax rates -- the equivalent of state corporate taxes in the U.S. -- the combined corporate tax rate in Canada rises to 26.1 percent.
What about Ryan’s claim that the "average tax rate on businesses in the industrialized world is 25 percent"?
We can use the same OECD data to check this claim. Averaging the 2012 tax rates for OECD members, we found that the average for the 34 countries studied is just slightly under 25 percent. That’s just as Ryan said.
And in case you’re wondering, the top U.S. corporate tax rate, including both federal and state taxes, is 39.1 percent. That’s quite a bit higher than Canada’s, and since April, it has been the highest corporate tax rate on the books of any OECD nation.
Still, the actual tax rate paid by a company will likely be lower than the official rate, due to deductions and exemptions.
Ryan said Canada dropped its corporate tax rates to 15 percent and that "the average tax rate on businesses in the industrialized world is 25 percent." He’s correct on both counts, though it’s worth pointing out that provincial taxes boost Canada’s rate to 26.1 percent, and that the actual rate paid by specific companies in certain countries, such as the U.S., can be lower than official rates due to deductions and exemptions. We rate Ryan’s claim Mostly True.
Paul Ryan, transcript of the vice presidential debate in Danville, Ky., Oct. 11, 2012
Organization for Economic Cooperation and Development, Basic (non-targeted) corporate income tax rates(Table II.1 - updated with 2012 data)
Canada Revenue Agency, "Corporation tax rates," accessed Oct. 12, 2012
Tax Foundation, "Canada Cuts Corporate Tax Rate to 15%, Lowest Overall Rate in G-7," Jan. 4, 2012
Globe and Mail, "Corporate tax revenues higher despite lower rate," Oct. 8, 2012
Parliament of Canada, list of prime ministers of Canada, accessed Oct. 12, 2012
Email interview with Scott Hodge, president of the Tax Foundation, Oct. 12, 2012
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