Policy Forum: Is Accelerated Depreciation Good or Misguided Tax Policy?

Canadian Tax Journal/Revue fiscale canadienne, Vol. 67, No. 1, 2019

16 Pages Posted: 23 May 2019

See all articles by Philip Bazel

Philip Bazel

University of Calgary - The School of Public Policy

Jack Mintz

University of Calgary - The School of Public Policy; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: April 23, 2019

Abstract

The authors examine the implications of Canada's response to the 2017 US tax reform. Canada's focus on accelerated tax depreciation will achieve lower marginal effective tax rates on capital for taxpaying companies, well below the US levels achieved with the Tax Cuts and Jobs Act that came into effect on January 1, 2018. By ignoring neutrality, the government offsets some of the potential gains by reducing the tax burden on capital, thereby failing to maximize efficiency gains from a better corporate tax system. Further, Canada's approach fails to respond to competitiveness effects of US reforms on corporate tax base erosion in Canada as companies shift profits to the United States. The low US tax rate on intangible income will draw certain functions to the United States. A more comprehensive approach to corporate tax reform, including some reduction in corporate income tax rates, would have been a preferable response.

Keywords: corporate income taxes, capital cost allowance, effective rates, efficiency, tax reform

Suggested Citation

Bazel, Philip and Mintz, Jack, Policy Forum: Is Accelerated Depreciation Good or Misguided Tax Policy? (April 23, 2019). Canadian Tax Journal/Revue fiscale canadienne, Vol. 67, No. 1, 2019. Available at SSRN: https://ssrn.com/abstract=3362904

Philip Bazel (Contact Author)

University of Calgary - The School of Public Policy ( email )

Calgary, Alberta
Canada

Jack Mintz

University of Calgary - The School of Public Policy ( email )

Calgary, Alberta
Canada
403-220-7661 (Phone)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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