A Tale of Two Cities – A Stunning Dichotomy

Toronto, CANADA

Chicago, Illinois USA, December 31, 2010 – On the surface there are startling similarities between the US and Canada that we all take for granted. Generally we fight wars on the same side. We all speak English and base our legal systems on English Common Law. Our land areas are roughly the same at 3.5 million square miles each, and our GDP per person is roughly the same at $46,000 per year.

But there the similarities end. The US has 320 million people and Canada has but 33 million. The US GDP is over $14.5 trillion and Canada’s GDP is $1.5 trillion. The US budget deficit is approaching $14 trillion and Canada’s is just over $55.6 billion (that’s right, I said billion).

Perhaps most stunningly, the US corporate tax rate is 35% and Canada’s is dropping in 2011 from 18% to 16.5%. Canada is one of the most tax competitive countries in the world, ranking 2nd of 10 countries surveyed and scoring 63.9. When compared to the US, which ranked 6th with a score of 100. Canada’s total tax costs are 36.1% lower than in the US. Let that sink in for a moment.

Let’s apply this fact to the two main financial centers of each country, Toronto and New York City, both world class cities. Just 350 miles apart, Toronto’s population is 2.5 million and its Metropolitan population is 6.3 million versus 8.4 million and 19.1 million respectively for New York City.

Toronto is one of the most tax competitive cities in the world, ranking 5th overall on the total tax index. In Toronto the combination of all corporate taxes at the national and Ontario level is 20.3%. In New York City the federal tax rate is 35% and the New York State corporate tax rate is 7.1% for a total of 42.1%.

So why wouldn’t a corporation move their operations to Canada? In 2012 Canada plans on reducing its corporate tax rate to 15%. Go ahead, give me a reason not to move your business to Canada.

KPMG thinks the Canadian tax business climate is attractive, as they have their biggest global support center in Toronto with more than 200 staffers. The Wall Street Journal has reported that, “Spectra Energy Corp., Houston, Texas, plans to invest more than $2 billion there in the next two years on infrastructure projects, particularly in natural-gas facilities in British Columbia. The Citco Group of Companies, a financial group that specializes in serving hedge funds, decided to put its only North American bank in Toronto. The bank joined a securities-processing arm—one of two globally—that Citco opened in Toronto in 2008, as well as a large, 20-year-old fund-services branch. Between the three, Citco now employs nearly 800 people in Toronto.”

The State of New York’s deficit is roughly $14 billion and New York city’s deficit may top $4.5 billion. Is there any question whether business taxes are going up? Meanwhile Canada and Ontario continue to cut taxes. The choice is yours. Which city would you choose?

Richard Wottrich

About Richard Wottrich

CEO & Senior Consultant, International Services, DSI Investment Banking Services, Inc.

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