This story has been updated.
In making a pitch for a new tax code, House Speaker Paul Ryan made a very misguided comparison to his northern neighbors.
Speaking to employees of WPC Technologies in his native Wisconsin, Ryan tried to make a case to bring down America’s high top corporate tax rate.
“The top tax rate on WPC is 44.6 percent. So, if you have a good year, you’re paying a 44.6 percent federal tax rate,” Ryan said. “Guess what the Canadians would be taxing themselves? Same kind of company — 15 percent.”
The pitch comes as Ryan readies to fight for a vision of tax reform that he’s had trouble getting off the ground, even as Republicans control both levels of Congress and the White House.
Trouble is, Ryan couldn’t be more wrong.
The Canadian corporate tax rate, like America’s, is complicated and full of loopholes and deductions. And, much like America, there is two levels of corporate tax — one on the federal level, and one on the provincial or territorial level.
Technically, the federal corporate income tax rate is 38 percent — but thanks to a series of deductions and abatements, the actual level is 10.5 percent for small businesses and 15 percent for regular companies.
Ryan was using a calculation of the top federal American rate, with some other taxes included, against the federal Canadian rate. That’s not quite accurate — as companies in Canada are nearly-evenly taxed by both Ottawa and the provinces. And he’s been using that incorrect number in his policy documents and his speeches for weeks.
(Correction July 7, 6:35pm: This story originally read that Ryan was using the combined American tax rate. A spokesperson for Ryan’s office said that the speaker’s American rate of 44.6 percent is not, in fact, the combined American rate. It appears Ryan is using a 2013 analysis from the Republican chairman of the Ways and Means committee that calculated the top possible tax rate for a small business based on a variety of factors. The speaker’s other point — that a Canadian company would be taxed just 15 percent — remains at issue.)
For companies with over $500,000 in revenue, the provincial rate ranges from 11.5 percent to 16 percent. For companies that earn less than the small-business cut-off, the rates are between two and five percent. For investment income the rates can go as high as 50 percent.
So Ryan’s is right that WPC Technologies, a medium-sized manufacturer with dozens of employees, would be taxed at a lower top rate if it were across the border in Ontario, but it would be around 25 percent, not 15.
Of course, litanies of tax credits and loopholes make this sort of comparison a mugs game.
The European Commission calculated in 2015 that the effective tax rate — that is, the tax rate companies actually pay, on average — for the United States was 36.5 percent. For Canada, it was just over 25 percent.
Canada has a vested interest in keeping eyes on Ryan’s plan. His original tax reform pledge proposed a border adjustment tax — an idea that would slap high tariffs on imported raw goods and lift taxes for American exports — which has alarmed Canadian business.