The surprising election of Donald Trump has brought about a lot of uncertainty regarding what economic policies to expect from the United States in coming years. However, business taxation is one policy where president-elect Trump has maintained a consistent position. Among other changes, the Trump campaign proposes to dramatically reduce the federal corporate income tax rate from 35 per cent to 15 per cent.

Make no mistake. This policy move would have major implications for Canada. For starters, it would dramatically reduce the competitiveness of our business tax regime. Canada currently holds a distinct advantage over the U.S. with a combined average federal-provincial corporate income tax rate of 26.7 per cent compared to 38.9 per cent in the U.S. With the Trump plan fully implemented, the American combined rate could drop below 20 per cent, erasing Canada’s advantage completely.

The reality of the global economy is that countries compete with one another for investment, so any advantage is critical. And the corporate income tax rate is an important component of a positive economic environment. If Canada becomes less competitive, it risks losing investment dollars that may gravitate to other places (recall Burger King’s recent merger with Tim Hortons and subsequent move to Canada was partly driven by our corporate tax advantage).

Crucially, declining tax competitiveness is not an abstract concern; there are real consequences for ordinary Canadians. Evidence-based research shows there are significant economic benefits from lower corporate taxes including increased investment, economic growth and wages.

Jurisdictions that lower business taxes increase the after-tax rate of return on investment, and increased returns improve the incentives for investment. In fact, a recent Department of Finance Canada study found that corporate tax cuts implemented by the federal Liberals between 2000 and 2004 led to higher investment.

Overwhelmingly, research also finds that corporate taxes impose much larger negative effects on the economy compared to other types of taxes (including property and sales taxes) partly because they tax investment, which tends to be more mobile than other tax bases. By cutting corporate taxes, and switching the tax mix away from this damaging revenue source, governments can actually boost economic growth and strengthen their tax base.
 
Finally, and perhaps counterintuitively, lower corporate taxes boost the wages of average workers. When businesses invest in machinery, equipment and technology, workers are able to produce more and create higher valued output for each hour they work, increasing their productivity. Because increased productivity leads to higher wages, workers, in the end, benefit greatly from corporate tax reductions.

Consider the results from a recent study that used individual-level data from Statistics Canada between 1998 and 2013. It found that, after controlling for other factors (such as a worker's age, education, union status, firm size, occupation, industry and a host of economic variables), lower corporate taxes increased average wages. Based on the statistical results, just a one percentage point drop in the combined corporate tax rate would increase the average wage of Canadian workers by between $254 and $390 the following year.

Canadian policymakers should understand all this, as federal and provincial governments of all political stripes have lowered corporate tax rates since 2000 when Canada’s combined rate stood at 42.7 per cent.

In fact, Canada’s experience is telling of the beneficial results of tax reductions, which when coupled with major fiscal reforms, helped drive strong economic performance relative to the U.S. and most other G7 countries from 1997 to 2007. As corporate and other taxes declined, Canada outperformed other countries on investment growth, job-creation and overall economic growth.

If Trump makes good on his tax plan, the impetus will grow for further corporate tax cuts in Canada, which would provide an economic boost for Canadians and their families.