President Donald Trump’s joint address to the United States Congress yesterday should send a chill down the spine of Canadian policymakers. On tax policy, Trump said:

My economic team is developing historic tax reform that will reduce the tax rate on our companies so they can compete and thrive anywhere and with anyone. It will be a big, big cut. At the same time, we will provide massive tax relief for the middle class.

If Trump’s “big, big” tax cuts actually materialize, which increasingly seems likely, this will spell trouble for Canada’s tax competitiveness and economic prospects. The reality of the global economy is that countries compete with one another for investment and skilled workers, so any advantage is critical. If Canada becomes less competitive on business and personal taxes, it risks losing investment dollars and skilled labour that may gravitate to a much larger market south of border.

The forthcoming tax cuts from the U.S. are unclear but may combine Trump’s campaign promises with the plan put forth by House Speaker Paul Ryan. This could include a marked reduction in the American corporate tax rate, the immediate expensing of capital investment for businesses, cuts to personal income tax rates, and a host of other changes. Together the business tax changes stand to completely erase any advantage Canada currently maintains over the United States. Meanwhile, the personal tax changes will make Canada’s already uncompetitive personal income system even less competitive.

Major pro-growth tax reform south of the border would create a clear and distinct divergence between the directions of tax policy in the U.S. and Canada. While the U.S. is poised to move in a direction of lower and more competitive taxes, Canada has in recent years been going the other way.

For instance, the Trudeau Liberals have raised the top personal tax rate on many of our country’s highly skilled and educated workers including entrepreneurs, business professionals, engineers and scientists. When coupled with similar provincial tax hikes, this has resulted in a combined federal and provincial top tax rate of 53.5 per cent in Ontario.

By international standards, Canada now has one of the highest top personal income tax rates in the industrialized world and the highest top tax rate among developed English-speaking countries. This is a serious problem because high personal income tax rates discourage work effort, skills development, savings and investment and entrepreneurship—all things that propel the economy forward.

In addition, rather than cutting taxes on the middle class, the Trudeau Liberals are increasing them with announcements that will raise payroll taxes to expand the Canada Pension Plan, eliminate widely-used tax credits, and impose carbon pricing on the provinces.

When it comes to investment, the Trudeau government has already scaled back the maximum amount Canadians can contribute each year to their Tax-Free Savings Accounts and there are rumours that the upcoming federal budget will raise capital gains taxes, which reduce entrepreneurship, innovation and ultimately economic growth.

Yesterday’s joint address reaffirmed the Trump administration’s commitment to major tax reform. Canadian policymakers must take note, reconsider their own tax policies, put forth tax changes to mitigate the adverse competitive implications.