It’s time to bust a myth: Canada’s highest income earners pay more than their fair share in taxes.
A new study from the Fraser Institute shows that in Canada’s four most populous provinces, the top 20 per cent of income-earning families pay well over half of the total taxes collected by all levels of government.
This includes 57 per cent in British Columbia, 57.1 per cent in Alberta, 58 per cent in Ontario, and 55.5 per cent in Quebec.
Which families qualify as being in the top 20 per cent of income earners? Those that collectively earn $261,600 or more.
The Fraser Institute study looks at both total taxes paid by families and total income taxes paid by families in assessing their contributions to governments’ overall tax revenue.
Taxes examined other than income taxes include sales taxes, payroll taxes, profit taxes, property taxes, fuel taxes, import duties, tobacco taxes, and alcohol taxes.
Canada’s income tax system is progressive in nature. That means that as individuals earn higher incomes, both the federal and provincial governments implement higher tax rates that kick in at various income thresholds.
Federally, income taxes vary from 14 per cent on each dollar of income an individual earns up to $57,375 to 33 per cent on income an individual earns above $253,414.
Here in Ontario specifically, the Fraser Institute finds that the burden placed on the highest earning families is the greatest of the four largest provinces examined in Canada.
The bottom 20 per cent of income-earning families pay just 0.8 per cent of personal income taxes and just two per cent of total taxes, even though they earn 4.7 per cent of total family income.
Conversely, the top 20 per cent of income-earning families pay 65.9 per cent of all personal income taxes and 58 per cent of total taxes, even though they only earn 49 per cent of total family income.
Some may say that it’s fine to soak the rich, as they have a greater ability to pay more of their income in taxes.
But other than the issue of fairness, there are real policy implications of placing such a heavy burden on Ontario’s, and Canada’s, highest income earners.
For one thing, such higher marginal tax rates reduce the reward that individuals receive for working more and engaging in more productive activities. If families at the upper end of the income spectrum know that well over half of any additional income earned is going to go toward taxes, they will be discouraged from doing the extra work or taking the extra risk to try to earn more income.
Moreover, high tax levels make it less attractive for folks like doctors, managers, and engineers to move to places like Ontario or stay in our province. With marginal tax rates far less in many places throughout the United States, for example, taxing the highest income-earning families at such devastatingly high rates reduces the likelihood of highly skilled workers moving here and increases the likelihood of them leaving.
Canada already has, as the Fraser Institute points out, a clear competitiveness problem. Canadian provinces impose nine of the 10-highest top combined marginal personal income tax rates out of 61 Canadian and American jurisdictions. And, internationally, Canada has the fifth-highest top combined personal income tax rate in the OECD, a group of 38 developed economies.
The answer to the massive budget deficits currently being faced at the federal and provincial levels, then, cannot be to try to raise taxes on our highest income-earning families. They already pay more than their fair share, and any further increases could lead to a loss of productivity or a greater incentive for those top earners to leave for more competitive jurisdictions.
Instead, governments must cut spending, live within their means, and focus on building an environment that fosters growth rather than stifles it.
Jay Goldberg is the Canadian Affairs Manager at the Consumer Choice Center. He previously served as the Ontario Director at the Canadian Taxpayers Federation and a policy fellow at the Munk School of Public Policy and Global Affairs. Jay holds a Ph.D. in Political Science from the University of Toronto.
