21 Dec What is the impact of the Biden Government
Now that Biden has been elected president, Canadians are wondering how this will impact our businesses. Having to pick up where Trump left off with tax and trade changes, not to mention starting his term during a pandemic, Biden’s incoming administration has left Canadians wondering how much things will change and how much we will be affected.
There are two aspects of Biden’s election that could influence business and employment decisions: trade policies and the new tax agreements
The Canada-US relationship has become rocky since Trump initiated the aluminum tariffs against Canada. These tariffs were imposed because the US believed Canada was taking advantage of their exports. Although the new Biden administration rejects this tariff, Canada could still be in a bind. US Trade Representative, Robert Lighthizer, said that if the US receives an escalation of imports, that they will reinstate the tariffs as they see fit. It seems that the threat of Trump’s trade decision still looms, and although Biden is trying to re-stabilize the Canada-US relationship, he cannot guarantee vast changes at the very beginning of his term.
While NAFTA (now know as the USMCA) is supposed to be in force for sixteen years, what is still concerning is the chapter Canada is calling the “Trump veto”. This chapter is troubling because it could impact Canada’s future trades. This requires that Canada gives notice to the US and Mexico if they want to enter a trade deal with a non-market country, one that is not currently represented in this treaty or present in previously made deals. If Canada breaks this rule, the other treaty country can demand a six-month pull-out from USMCA. This could not only present limitations to Canada, but it could be an even greater concern for the future of USMCA altogether.
Biden’s response to these issues is that he is looking to stabilize the USMCA and Canada’s relationship with the US
However, even with Biden as president, Canada could still be dealing with some trade restrictions. Biden is focused on a protectionist trade approach, meaning that he wants to keep trade within the US. He has explained that he does not want to attack allies like Canada, but he will be prioritizing the interests of the US.
The dependence on the multitude of Canada-US imports and exports could become impaired. Because Biden wants to limit the supply chain during the pandemic, this could impact Canada’s manufacturing sector. Canadian companies that depend on US infrastructure projects at the state and municipal level could be majorly impacted.
Taxation and Social Security Changes
In addition to changes with trade agreements, Biden has been focused on altering taxation. There are changes in the US corporate tax rates, financial transaction taxes, and social security taxes that could all impact employment and business methods.
Biden has instigated an increase in US federal corporate tax rates from 21% to 28%. This change renders Canada a more attractive location to do business. Canada currently has a combined federal and provincial corporate income tax rate that is significantly lower than the US which may impact Canadian corporations with US subsidiaries, Canadian corporations with US business activities, and corporate investment decisions. The corporate tax rates in Canada are presently more attractive than the US, which makes investing in Canadian companies much more feasible.
Biden has also proposed an increase in Financial Transactions Tax (FTT) that is 0.05-0.2% on securities (equity, debt and derivatives) transacted in the US. With the advancement of the FTT, this can affect Canadians based on their previous investment decisions. Because Canadians routinely invest in US, the FTT would come directly or indirectly out of the pockets of both Americans and Canadians. The FTT could depress the US securities markets, individual securities, and impact the investment climate in the US. In response, it would be a good time for Canadians to reduce the amount of their investments held in US securities and start considering other investment strategies.
Employment earnings and US social security tax
Another shift that could affect Canadian businesses is that employment and self-employment earnings over $400,000 are subject to US social security tax. The current law, for employment and self-employment earnings, imposes a 12.4% US social security tax to be split evenly between the employee and employer on earnings up to $137,700. There is no limit on Medicare Tax of 2.9% on all employment earnings split equally like the employee and employer. An Additional Medicare Tax of 0.9% applies to employees with employment earnings over $200,000. With Biden’s plan, the US Social Security and Medicare Tax would increase by 33%. This affects Canadian employees transferred to the US if the employment is greater than five years. It also forces US employees transferred to a Canadian business to pay their full US taxation, which is currently much higher. This could seriously affect certain employees because a Canadian employee pays a tenth of what the US employee is paying in tax.
The changes Biden is imposing may affect Canadians in a multitude of ways
The bottom line is that current changes in the US cannot directly affect Canadian employment laws, but it can alter how we manage our businesses.
As we are just at the beginning of Biden’s term, a good quantity of the information circulating is all speculative. However, when it comes to managing a business or managing your rights as an employee, it is important to be aware of the changes that could directly or indirectly impact your current position.
If you are affiliated with a business or corporation that is doing business in the US and are concerned with these changes, the employment team at KCY at LAW are here to help. Call 905-639-0999 or book your consultation online.