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OTTAWA—Despite recent reports to the contrary, Canada’s high-income earners do not pay a disproportionately large share of personal income tax.
A new analysis by Prof. Neil Brooks of Osgoode Hall Law School, released today by the Canadian Centre for Policy Alternatives, takes a closer look at the numbers in Statistics Canada’s “Tax Incidence in Canada.” The Stats Can report sparked a series of news stories this spring claiming the top 10% of income earners pay 52% of the total tax bill but Brooks finds these figures both misleading and incomplete in assessing the fairness of the tax system.
The Statistics Canada study showed that the share of federal income taxes paid by the top 10% increased from 46% in 1990 to 52.6% in 2002. Brooks points out, however, that this increase is not a result of the tax system becoming more progressive. Instead, the main reason for the increase was because the share of earned income going to the most affluent among us increased by 12.6% over that same period, while the share going to the bottom 50% of tax-filers declined.
“In fact, the increasing inequality in the distribution of income in Canada is the real story of the Statistics Canada analysis,” Brooks says. “Canada is becoming a much more unequal society.”
Furthermore, Statistics Canada included all tax-filers in their study, half of whom reported incomes of less than $23,000 in 2002. This inclusion lowered the threshold for being in the top 10% — all those earning more than $64,500 were considered to be in this highest category — and increased their apparent share of taxes paid.
Brooks points a finger at the business press for embracing the selective use of statistics to create false impressions about who pays the greatest share of taxes. When all taxes are considered, he notes, the Canadian tax system is roughly proportional.
“All Canadian residents — whether they earned $10,000, $100,000 or $1,000,000 — pay somewhere between 30% and 35% of their income in taxes of all kinds,” says Brooks. “Contrary to the claims of business groups, we already have a flat tax system. The mild progressivity of the income tax system simply offsets the regressivity of other taxes like the GST, retail sales taxes and property taxes, which take their biggest bite, proportionally, from lower-income Canadians.
“By itself, the percentage share of the income tax paid by the rich is almost meaningless in assessing the fairness of the tax system,” he concludes.
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