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OTTAWA—The new federal government has plenty of room to raise the taxes of Canada’s one percenters, according to a new study by the Canadian Centre for Policy Alternatives (CCPA).
The study, released in the wake of a federal election that handed the Liberals a majority government, concludes there is plenty of room for the new government to make good on its election promise to raise the top marginal income tax rate on those earning $200,000 or more to 33%. In fact, the findings suggest there is room to do more higher up the income scale.
How Much Income Could Canada’s Top 1% Pay?, by internationally respected CCPA Research Associate Lars Osberg, shows Canada’s richest now pay a lower tax rate than in the 1990s even though their share of total income has increased dramatically.
“The top marginal income tax rate has been well over 50% for most of the time Canada has had an income tax. In fact, during Canada’s high growth years between 1940 and 1980, the top marginal income tax rate was well over 70%. Now the top federal income tax rate is 29%,” says Osberg. “Our federal government used to ask more of Canada’s richest one per cent. There are plenty of reasons to do so again.”
Among the report’s findings:
- Canada, on average, has become a low-tax jurisdiction for the affluent compared to the U.S. When provincial income tax is added to federal income tax, the average total top marginal income tax rate on labour income was 45.7% in 2013. The average top marginal income tax rate across American states was 47.9%.
- Special tax treatment for capital gains and dividends and other features of the tax code meant that the top one per cent of Canada’s tax filers actually paid much less than the nominal top 45% marginal tax rate. Averaging over five years, 2008-12, the top one percent (those earning $205,460 or more) paid an average actual tax rate of 33.2%.
- Introducing a new 65% marginal tax rate for income in excess of $205,000 would roughly double the current actual marginal tax rate at the top and could yield between $15.8 billion and $19.3 billion in additional tax revenue. The median top one percenter with taxable income of $289,000 would see a $27,000 increase, on average, in taxes.
- If capital gains income was also taxed, the yield in additional revenue could be between $21.8 billion and $26.1 billion.
- To put these revenue gains in context, in 2012-2013 the total tuition revenue of Canada’s colleges and universities was $8.1 billion and federal infrastructure spending was $5 billion. Total provincial and federal income tax revenue was $176.7 billion.
- The paper finds scant evidence that higher top tax rates would prompt a rush of “job creators” or “the best and brightest” to emigrate.
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