As Canadians prepare to elect the next federal government, there are growing calls for tax increases for high-income Canada, based on the belief that they will not pay a “fair distribution.” Unfortunately, political rhetoric on taxes usually argues very little about the actual facts about the distribution of taxes paid by different income groups.
New studyWhen we measured the distribution of personal income tax in Canada, we found that the top 20% of income income actually paid most of the income tax. Specifically, the top 20% pay nearly two-thirds of the federal and state total income tax (63.2%) and earn less than half of the country’s total income (44.1%). These families are the only income groups in Canada that pay more taxes than their share of the income they earn.
In fact, all other Canadian families whose incomes fall below the top 20% have a lower percentage of personal income tax than their total income. For example, the bottom 20% of earning families pay 1.0% of personal income tax and earn 5.5% of their total income.
Why? Canada’s progressive income tax system is for both state and federal governments to tax individuals at higher rates on income above certain thresholds. For example, the current marginal federal tax rate is 15% for personal income up to $ 49,020, while income above $ 216,511 is taxed more than twice that (33%). At the same time, many low-income households do not pay personal income tax because tax credits and deductions are higher than unpaid taxes.
In addition to income tax, Canadians also pay a myriad of federal, state and local taxes, including payroll tax, sales tax, property tax, fuel tax, profit tax and import tax. Extending the analysis to include all tax distributions, the data show that high-income Canadian families are still paying disproportionate proportions of national taxes.
Specifically, the top 20% of earning families pay more than half (54.7%) of all federal, state, and local taxes, but again, less than half of all income (44.1). %)is. And these high-income households are the only income groups that pay a larger share of total tax compared to the share of collective income. By comparison, the bottom 20% of earning families pay 2.3% of total tax while earning 5.5% of all income.
Obviously, the rhetoric that high-income Canadians pay very little tax is not based on reality.
Finally, calls for tax increases to high-income earners usually overlook the economic implications. Simply put, people respond to incentives. When the government raises or introduces new taxes, it reduces the economic benefits of important economic activities such as entrepreneurship, investment and innovation, thus reducing incentives for those activities. You should not use the tax system to penalize the very activities you need and want more in Canada.
Tax increases for the highest-income earners also make Canada less competitive with other developed countries, especially the United States. Tax increases for high-income earners make Canada an unattractive place to live and work for highly skilled doctors, scientists, software engineers and others.
While there is reasonable debate about Canada’s tax structure, tax policy debates during and after the campaign need to be rooted in evidence, not rhetoric.
Jake Fuss and Tegan Hill are economists at the Fraser Institute.
The views expressed in this article are those of the author and do not necessarily reflect the views of The Epoch Times.