菲沙研究所-在所有收入水平上，加拿大人缴纳的个人所得税要比美国人高（英文）-2020.7-52页_931kb

Summary of Canada’s Rising Personal Tax Rates and Falling Tax Competitiveness, 2020

Core Content

This report analyzes the changes in Canada’s personal income tax rates from 2009 to 2019, highlighting the increasing marginal tax rates on upper-income earners and the impact on Canada's tax competitiveness compared to the United States and other OECD countries. It argues that higher tax rates discourage productive economic activity and may not generate the expected government revenue.

Main Points

1. Tax Rate Increases in Canada

• In December 2015, the Canadian federal government introduced a new tax bracket, increasing the top federal income tax rate from 29% to 33% for incomes over $200,000.
• Since 2010, at least one Canadian province has increased its top personal income tax rate every year except 2011 and 2019.
• Seven out of ten provincial governments raised tax rates on upper-income earners between 2010 and 2019.
• The combined federal and provincial top marginal tax rate has increased in every province since 2009.

2. Comparative Tax Rates

• Canada vs. the United States:

  • Nova Scotia, Ontario, and Quebec currently have the highest combined top marginal tax rates among Canadian provinces.
  • These provinces are among the top 10 in the world for the highest combined top marginal tax rates.
  • At income levels of $300,000, $150,000, $75,000, and $50,000, Canadian marginal tax rates are higher than those in the U.S.
  • There are 48 U.S. jurisdictions with lower combined top tax rates than all Canadian provinces.

• Canada vs. OECD Countries:

  • In 2018, Canada had the 7th highest combined top marginal tax rate among 36 OECD countries.
  • The federal tax rate increase in 2016 significantly worsened Canada’s competitive position compared to other OECD countries.

3. Impact of Tax Increases

• Higher marginal tax rates reduce the incentive for individuals to earn more income, which can negatively affect economic growth and labor participation.
• Taxpayers, especially high-income earners, tend to change their behavior (e.g., working less, investing abroad) in response to higher tax rates, which may result in less revenue than expected.
• The marginal cost of public funds (the additional tax revenue generated per additional dollar of government spending) is higher in provinces with higher marginal tax rates, indicating less efficiency in raising revenue.

4. Provincial Tax Rate Changes

• Alberta: Increased the number of tax brackets from one to five, raising the top rate to 15% (from 10% previously). The top rate now applies to income over $314,928.
• Ontario: Increased its top rate to 20.53% for income over $220,000.
• Quebec: Introduced a top rate of 25.75% for income over $100,000 in 2013 and increased it further to 20.30% for income over $150,000 in 2016.
• Nova Scotia: Increased its top rate to 21% for income over $150,000 in 2010.
• New Brunswick: Initially reduced tax rates from 2008 to 2011, but later increased them again.
• Saskatchewan: Reduced all tax brackets by 0.5 percentage points in 2017.
• Manitoba and Prince Edward Island: Did not introduce new tax brackets, maintaining the status quo.

5. Income Thresholds and Tax Competitiveness

• The threshold at which the top tax rate is applied varies significantly across provinces.
• A lower threshold means that the top tax rate applies to a smaller portion of income, making the effective tax rate higher.
• For instance, Manitoba’s top rate applies to income above $70,610, while Nova Scotia’s applies above $150,000.
• Comparing only the top rate is misleading; thresholds must be considered for an accurate assessment of tax competitiveness.

Key Information

• Tax Competitiveness: Canada's top marginal tax rates are generally higher than those in the U.S. and other OECD countries, making it less attractive to skilled labor, investment, and entrepreneurs.
• Revenue Expectations: Tax rate increases are unlikely to generate the expected revenue due to behavioral responses from taxpayers.
• Economic Impact: High marginal tax rates can hinder economic growth by reducing the reward for additional work and discouraging productivity.
• Provincial Trends: Most provinces increased their top tax rates, with Alberta experiencing the largest increase (9 percentage points or 23.1%).

Conclusion

Canada's personal income tax system has become increasingly uncompetitive due to rising marginal tax rates on upper-income earners and the relatively low income thresholds at which these rates apply. While the goal of these changes was to increase government revenue, the economic literature suggests that they may have unintended consequences, including reduced labor participation and investment. Reversing the trend toward higher marginal tax rates and lowering personal income tax rates could improve Canada’s competitiveness and support long-term economic growth.