FRASER INSTITUTE -- Ottawa’s tax hike on high-income earners will take in less revenue than expected—and eventually less than if it hadn’t increased taxes at all
The federal government’s recent tax
increase on top
earners will not
raise the level of revenues
expected and will eventually
reduce government revenue, finds
a study released today by the Fraser Institute, an independent, non-partisan Canadian
public policy think-tank.
“When governments raise tax rates
with an eye on more revenue, taxpayers respond by
working or investing less, or legally
shifting income or expenses to
reduce their taxes, which
results in less additional revenue than governments expect,” said
Finn Poschmann, resident scholar at the Fraser
Institute.
In Revenue Effects of
Tax Rate Increases on High-income
Earners, Ergete Ferede, study author and associate professor
of economics at MacEwan University in Edmonton,
spotlights the federal government’s top
personal income tax rate increase (from
29 per cent to 33 per cent), which took effect in 2016.
He accounts for the
fact that when income tax
rates change, taxpayers respond.
According to study estimates, if there were no behavioral responses
from taxpayers — in other words, taxpayers continue to behave as if there
were no tax changes — the
federal government would collect an additional $10 billion this year due
to the tax increase. But after
accounting for taxpayer responses, that number drops to $800 million
— a difference of $9.2 billion.
More worryingly,
by 2025, the author estimates that taxpayers’ behavioural responses to the tax rate increase will outweigh any additional revenue collected, meaning Ottawa will actually collect less tax
revenue than it would have had it
not increased
the tax rate.
“Tax rate hikes on high-income earners seem to be a popular policy
choice for governments facing
budget challenges, but this
study casts doubt on the appropriateness
of raising tax rates on high-income
earners as a tool for gaining revenue,”
Ferede said.
The Fraser Institute is an independent Canadian public policy research and educational organization with offices in Vancouver, Calgary, Toronto, and Montreal and ties to a global network of think-tanks in 87 countries.
Its mission is to improve the quality of life for Canadians, their families and future generations by studying, measuring and broadly communicating the effects of government policies, entrepreneurship and choice on their well-being.
To protect the Institute’s independence, it does not accept grants from governments or contracts for research
Comments
Post a Comment