The U.S. imposition of hefty tariffs demands bold policy measures to strengthen the resilience and competitiveness of Canada’s economy. A powerful move would be to cut personal and business tax rates to drive new consumer spending, spark business investment, fuel entrepreneurship, and make Canada a top destination for businesses and high-skilled workers.

In his March 4, 2025 speech to a joint session of Congress, President Donald Trump pronounced “the next phase of our plan to deliver the greatest economy in history is for this Congress to pass tax cuts for everybody. …We’re seeking permanent income tax cuts all across the board and to get urgently needed relief to Americans hit especially hard by inflation.” 

Canadians need relief too:

• Combined federal-provincial top marginal personal income tax rates are over 50% in the majority of Canadian provinces.
• Combined top marginal tax rates in the provinces of Newfoundland and Labrador, Nova Scotia, Ontario, British Columbia, Quebec and New Brunswick are among the highest in the Organisation for Economic Co-operation and Development (OECD)-member countries, with only Austria, Denmark, France and Japan having slightly higher rates.
• Canada’s marginal income tax rates are generally uncompetitive compared to those in the U.S. across a variety of income levels and jurisdictions.
• Roughly 36% of Canada’s tax revenue is raised from personal income taxes compared to an OECD average of 23.6%.  ²

According to the paper, What Are the Economic Costs of Raising Revenue by the Canadian Federal Government? published by the Fraser Institute, an additional dollar of tax revenue raised through the federal personal income tax costs Canadian society $2.86 due to the negative behavioural responses³ associated with tax increases. The cost to society of raising an additional dollar of tax revenue through provincial income taxes is much higher in Canada’s largest provinces. Yet, Canada relies heavily on personal income taxes to generate revenue.

Canadian governments are choking the economy with high tax rates, an unpleasant situation to be in for an economy shaken by trade wars.

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