By Kent Gardner
Separated by water and a line on a map, Canada’s Golden Horseshoe Region, powered by Toronto, prospers while upstate New York, dominated by Buffalo, Rochester and Syracuse, barely holds its own. How can neighboring regions in different countries share so much but fare so differently?
Two policy differences stand out: immigration and business taxes.
Since 1996 the Golden Horseshoe added more than a third to its employment base and a quarter to its population. Upstate increased neither.
The Golden Horseshoe added more than 1 million new jobs from 1996 to 2011, up 36 percent over the period, outstripping its 28 percent population growth. Upstate barely managed to replace jobs lost. With the exception of manufacturing, every major sector paid higher wages in Ontario than in upstate in 2009.
Canadian voters and politicians seem to believe that immigration is good for their economy. Adjusted for population, immigration to Canada in 2011 was more than twice that of the United States.
Not only does Canada admit relatively more immigrants, but it gives preferential treatment to “economic immigrants” – individuals who bring skill and education to their adopted workplaces. Although the United States also grants preference to the skilled and educated, the quota is far smaller.
Canada also boasts a favorable tax climate for business. The burden of taxation on business is not the only factor driving a firm’s location choice, but it can be an important factor. According to a study released by consultancy firm KPMG in 2012, the best tax climate for business overall was India. Canada ranked second, just ahead of China.
In a head-to-head competition between Toronto and Buffalo, KPMG reported that business taxes in Toronto are two-thirds of Buffalo’s.
What are the lessons for the United States? First, our ability to tax business is limited. The rhetorical battle over tax policy often focuses on what individuals and firms can afford to pay. This may appeal to our sense of fairness, but experience tells us that taxes affect behavior.
Second, immigrants revitalize our economy; they don’t threaten it. As Congress struggles with immigration reform, it should expand access to the best and brightest of other nations.
The colleges and universities of the United States, including the many highly respected upstate institutions, are the world’s most powerful magnet for smart young people from foreign lands. Some have suggested that a graduate diploma should automatically come with the right to work – a “green card.” Not only would this help upstate emulate Canada’s success, it would also improve the nation’s economy.
Kent Gardner, Ph.D., is chief economist/chief research officer at the Center for Governmental Research in Rochester.