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The 1% Could Pay More

By Andrew Rickard | November 04 2015 09:45AM

The wealthiest people in Canada could pay significantly more in taxes, according to a report from the Canadian Centre for Policy Alternatives (CCPA).

In How Much Income Could Canada’s Top 1% Pay? CCPA research associate Lars Osberg argues that, in recent times, Canada has become a relatively low tax rate jurisdiction for the very affluent. While the current average marginal tax rate in Canada is about 46%, Larson notes that between 1940 to 1980 it was well over 70%. "Apart from a very brief period in the 1920s, the years from 1982 to the present stand out as a time of exceptionally low top marginal tax rates," he concludes.

The paper suggests that it would be closer to historical norms if the marginal tax rate on income over $205,000 (which is the cut off point for top 1% income category) were raised to 65%. This would generate between $15.8 billion and $19.3 billion in additional tax revenue, which the CCPA says could be used to fund tuition-free post-secondary education and increase federal infrastructure renewal programs.

But wouldn't wealthy people leave Canada to escape these higher taxes? Osberg claims there is little evidence that higher tax rates would prompt a "brain drain" or drive away job creators. In particular, the report points to a study conducted in 2011 on what happened when New Jersey increased its income tax rate; high earners could have moved 30 miles and paid lower taxes in a neighbouring state, but data from 40,000 people show that that the actual amount of tax flight was very small in magnitude.

"Talk is cheap, but actually moving means giving up the public services that taxes pay for. Although taxes are disliked, they are the flipside of government expenditures," writes Osberg. "When comparing the pleasures of life in different places, what matters is the net advantage — i.e. including the cost of taxes paid and the benefits of public expenditures received. The affluent like many of the things — such as pothole free roads, nice parks and crime-free public spaces — that tax dollars enable, and they can afford to live where they want to."

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