For most of my life, Canada has been to the left of the United States. We had bigger government, higher taxes, more debt, and more regulations. We have also under-performed the U.S. Our dollar dropped by 30% against the U.S. dollar, our standard of living didn’t rise as fast, and our per-capita GDP lagged.
Now, the tables have turned. Cato’s Economic Freedom of the World has for the first time ranked Canada as being more economically free than the United States.
An article in the Washington Post last week has some charts which highly the dramatic changes Canada has undergone in the past two decades:
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Government spending has dropped from a peak of 53% in 1992 to 39% today. In the meantime, the U.S. has gone from a low of 34% in 2000, to 38% today. Next year, the curves will cross and the U.S. will have a bigger government as a share of GDP than does Canada.
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Canada’s debt was 70% of GDP in 1994. In 2008, it had dropped to 32%. The U.S. debt was at a low of 33% in 2001, but will hit 60% next year, and is projected to go over 80% by the end of Obama’s term.
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Canada has been running surplus budgets for ten years - all from cutting spending. We’re running a small deficit this year, but nothing remotely close to the U.S.'s. We’re in a position to be running surpluses again when the economy recovers, while the U.S. will be running trillion dollar deficits indefinitely.
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We re-structured our pension plans in the 1990’s, and they are now fully funded. The U.S. pension system will go broke in a couple of decades.
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Canada is now more decentralized, with 41% of our government being controlled by the feds, vs 62% in the U.S. And the U.S. federal government is rapidly growing in power and control in the U.S.
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In 2001, Canada’s corporate tax rate was higher than the U.S.'s. It’s now lower, and by 2012 will be almost half the U.S rate.
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Canadians have always paid higher individual taxes than the U.S. This is no longer the case. When Bush’s tax cuts expire, our personal rates will be about the same. With Obama’s proposed tax increases, Canada’s personal rate will be lower than the U.S.'s.
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Canada’s tax system will be less progressive than the U.S’s, because we raise more tax money from sales and excise taxes.
This short article at Cato describes some of the other ways in which Canada is now freer than the U.S.
Lots of items for debate here. First, it seems to me that we have a good test of the stimulus plan. Canada didn’t not do anywhere near the same amount of stimulus as the U.S. Would following the relative economic performances of the U.S. vs Canada be a good way to measure whether or not the stimulus worked?
What other effects can we expect to see if this trend continues? For example, Canada has historically suffered a ‘brain drain’ to the U.S. - our best doctors, engineers, scientists, and others have moved to the U.S. in search of better living standards and lower taxes. Will that reverse? Will we see high income Americans moving to Canada to escape high taxes and regulation?
How about business? Are we going to see an increase in business investment in Canada?
Will Canada’s GDP growth start to outstrip the U.S’s? Will the difference in standards of living start to reverse?
One effect is already becoming apparent - the U.S. dollar has been weakening because of debt pressure. Last October, the Canadian dollar was worth 77 cents against the American dollar. Today it’s at 89 cents.
So, what does the future hold for Canada with respect to the U.S? Is Canada rising? Any predictions for what the two countries will look like in 10 or 20 years?