The merger of U.S. hamburger giant Burger King with Tim Hortons, Canada’s favorite coffee shop, will create the world’s third largest fast-food company, with a total of 18,000 restaurants in over 100 countries. It is also a piercing wake-up call for the U.S., because the new company will make its global headquarters in Canada’s province of Ontario. That underscores what savvy businesses everywhere have learned — the U.S. is an increasingly less attractive place to do business. “Canada has quietly and politely become, well, more American than America,” says columnist Stephen Green.
Since 2003, more than 35 major U.S. companies have moved their headquarters and reincorporated overseas. Rather than rail against such “inversions,” as President Obama does, or call for an economic boycott, as Ohio’s Democratic senator Sherrod Brown does, we should figure out what is driving U.S. companies offshore. Here’s a clue: The U.S. now has the highest corporate tax rate of any industrialized country, and the Wall Street Journal reports that the Obama administration is “even now looking for ways it can unilaterally raise corporate taxes without going to Congress.”
Canada has long been our more socialist and, consequently, our poorer neighbor to the north. But that has changed over the last two decades. Starting in 1995, Canada has drawn back from a public-debt precipice, restrained government spending, and dramatically overhauled its tax system. Next year it will also begin unilaterally reducing tariffs on thousands of manufactured goods — recognizing that free trade makes for wealthier consumers and a more prosperous society.
The results have been dramatic. This year, Canada has a higher per capita household income than the U.S., an unheard-of development that no one saw coming. It ranks eightth in the annual Economic Freedom of the World index (freetheworld.com) that the Fraser Institute compiles for over 150 countries, with especially strong marks in property rights and business freedom. By comparison, the U.S. ranks a pathetic 17th and is now categorized as only “mostly free.” “Unfortunately for the United States, we’ve seen overspending, weakening rule of law, and regulatory overkill on the part of the U.S. government, causing its economic freedom score to plummet in recent years,” said Fred McMahon of the Fraser Institute. “This is a stark contrast from 2000, when the U.S. was considered one of the most economically free nations and ranked second globally.”
While the U.S. eagle has plummeted in terms of economic freedom, the Canadian maple leaf has prospered. The consulting firm of KPMG looked at the tax costs of doing business in ten major nations. Setting the U.S. tax rate at a benchmark score of 100, it found that Canada’s costs were the lowest, 46.4 percentage points lower than the U.S. The United Kingdom, Mexico, and the Netherlands also beat out the U.S.
Canada’s strategy of lowering tax burdens on business was a conscious one, begun under the Liberal government of Paul Martin and accelerated since 2006 by the Conservative government of Stephen Harper. The late Jim Flaherty, who served as Harper’s finance minister until March of this year, told me last year that the essence of smart taxation is “to raise the resources needed for prudent government while creating an environment where the private sector is encouraged to create the longer-lasting jobs a country needs to prosper.” He concluded that “if you can give people enough upward opportunity for average people, the talk will be on creating more of it rather than on redistributing a shrinking pie.”
Among the innovations that Flaherty introduced was the Tax Free Savings Account, which allows Canadians to save more by setting aside money tax-free if it’s invested. Combined with the already established Registered Retirement Savings Plan, which is focused on building retirement income, Canadians now have more tax-free savings vehicles to help them remain independent over their lifespan than any people outside of Chile, which privatized its Social Security system in the 1980s.
No one suggests that Canada is a pure beacon of freedom. Harper’s Conservatives have a majority of seats in Parliament, but just shy of 50 percent of Canadians in the last election, in 2011, cast ballots for either the Liberals or New Democrats, both interventionist purveyors of big government. Canada’s single-payer health system delivers less innovation and longer waiting lists than Americans would be likely to tolerate, and many of Canada’s provinces are once again piling up debt and overspending.
But Canada proves that a country can climb out of a deep fiscal hole within a remarkably small number of years and build a prosperous society even while it retains large welfare-state programs.
That is a lesson for U.S. Democrats, who, rather than rail against Burger King’s lack of economic patriotism, should learn how Canada has avoided America’s economic stagnation. It’s also a lesson for Republicans, who often lack the courage of their convictions in calling for genuine economic reform. Canada’s economic example — and the political success of Harper’s Conservatives in winning three elections in a row — should stiffen their spines.
— John Fund is national-affairs correspondent for NRO.