Canada is lowering its general corporate income tax rate to stay ahead of the United States.

Finance Minister Ralph Goodale said Wednesday the corporate income tax rate is going down to 19% from 21% between 2008 and 2010 to maintain the tax advantage Canada has over the U.S.

In 2004, Canada’s average federal-provincial corporate tax rate was 2.3 percentage points lower than the average federal-state corporate tax rate in the U.S.

But last year the U.S. legislated a plan to reduce its corporate tax rate on manufacturing income by 3.15 percentage points by 2010.

The budget said it is important for Canada to retain its tax advantage over the U.S. because the two economies are highly integrated. The corporate tax reductions planned in the U.S. would have greatly diminished Canada’s advantage, particularly in manufacturing.

Since 2000, the corporate tax rate has fallen from 28%.

The latest federal budget also contained plans to eliminate in 2008 the corporate surtax, introduced in 1987 as a deficit-fighting measure.

Its elimination is the equivalent of a 1.12 percentage-point reduction in corporate income tax rates.

The government said the tax reductions would establish a solid corporate tax advantage for all sectors. For Canadian manufacturers, the corporate tax advantage over their U.S. counterparts will be 4.5 percentage points by 2010.