It's autumn in the northern hemisphere and leaves are not the only objects drifting downward. Federal tax rates are also about to fall. In the last federal budget, federal Liberals promised $58 billion in tax cuts over the next four years. The Canadian Alliance recently backed off an ambitious single tax idea but proposes $125 billion in reductions over the same period. The Tories have pushed the elimination of the capital gains tax, while the federal NDP are nowhere on the tax issue, firmly wedded as they are a Keynesian economic view that was outdated when first pushed, never mind in the 21st century.

The tax cut competition is healthy; while both of the main federal contenders propose to spend more money, with the Grits doling out subsidies in Atlantic Canada in particular, there is no doubt that by 2004, and perhaps before, Canadians will finally see a visible difference on their paycheques. That bodes well for future investment, job creation, and wages.

In the immediate, what to make of the various tax cut proposals? First some balloon popping: Neither the $58 billion Liberal plan nor the $125 billion Alliance plan is quite what the numbers imply. In both plans, $18 billion worth of now-ended "bracket creep" are included as a tax reduction. That $18 billion was a planned tax increase that will not occur. It's a bit like a cop who cancels your planned $18 parking ticket. It's welcome, but not really a cut in taxes.

In addition, Canada Pension Plan taxes will rise by $14 billion over the next several years. Subtract those two numbers from each parties' plans, and Canadians are left with a choice of a $93 billion Alliance tax cut, and a $26 billion Liberal tax cut. Rumour has it federal Finance Minister Paul Martin will soon boost the Liberal tax cuts to make them more substantial.

That's critical, given that Canada is about to be sideswiped in the international competition for lower tax rates on personal income. Many European governments have already cut taxes or plan to reduce their personal rates, and last year, the U.S. boosted the income level at which the top tax rate kicks in from just over $400,000 (Canadian) to about $450,000 now. That compares to a top marginal rate in Canada of about $65,000.

After the November election, further tax cuts are planned. If Al Gore wins, stay-at-home parents are promised some tax relief, and the Democrats plan to offer an after-school tax credit. The Bush camp plans more specific tax cuts; an American family that makes the equivalent of $52,000 Canadian will get a $2,250 tax cut, while a $75,000 family will get a $3,000 tax break. (All figures converted to Canadian dollars.)

Three cheers for the competition, as it will force Canadian governments here to drop their income tax collections or fall further behind. The only bad news about the tax cut race is that provincial tax rates will not automatically be cut as well. In the past, British Columbians experienced an automatic provincial tax hike when Ottawa raised rates. That's because provincial taxes were calculated as a percentage of federal tax payable. B.C.'s government cut that link earlier this year precisely to avoid falling federal tax rates. Taxpayers should note that neither Socred nor NDP finance ministers had a problem with the Ottawa link when it meant increased revenues for the provincial treasury.