Canada’s top tax rates are often applied to lower levels of income than is the case in other countries further erodes our tax competitiveness. To adjust for differences in income thresholds, we compare the combined statutory marginal tax rates at various income levels in Canadian dollars for each Canadian and US jurisdiction. At an income of CA$300,000, the highest threshold (with the slight exception of Alberta) in which a Canadian combined top rate is applied, Canadians in every province face a higher marginal income tax rate than Americans in any US state. Results are similar at an income of CA$150,000 and Canada’s marginal tax rates are also uncompetitive at incomes of CA$75,000 and CA$50,000.
Taken together, Canada’s personal income tax rates are decidedly uncompetitive compared to those in the United States. And, Canada also competes with other industrialized countries for highly skilled workers and investment. To measure the competitiveness of Canada’s top tax rates, the study compares the combined top statutory marginal income tax rates with rates in 34 industrialized countries. In 2017 (latest year of available international data) Canada had the 7th highest combined top tax rate out of 34 countries. The federal change to the top rate in 2016 has markedly worsened Canada’s competitive position. For instance, Canada had the 13th highest combined tax rate in 2014, before the changes in the federal top rate.
Canadian governments have put the country in this uncompetitive position in part to raise more revenue as they grapple with persistent deficits and mounting debt. However, the tax increases are unlikely to raise as much revenue as governments expect since taxpayers—particularly upper-income earners—tend to change their behaviour in response to higher tax rates in ways that reduce the amount of tax they might pay. Federal and provincial governments would do well to consider reversing the trend towards higher marginal tax rates on upper-income earners, and lower personal income tax rates.
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