‘Patriotic Millionaires’ ignore basic tax facts
A group of more than 100 billionaires and millionaires—including five Canadians—recently gathered at a virtual conference for the World Economic Forum and suggested they must pay their “fair share” of taxes.
Unfortunately, the discussion ignored important facts about the tax system including the distribution of taxes paid by different income groups.
Calls for tax increases on high-income earners are nothing new in Canada. In 2016, the Trudeau government raised the top federal personal income tax rate from 29 per cent to 33 per cent in part to improve “tax fairness.” Six years later, several politicians have proposed further tax increases in the form of wealth taxes, higher taxes on capital gains, and increasing the top income tax rate even further.
These proposals often exclude a definition of tax “fairness,” and again, ignore basic facts. According to a recent study published by the Fraser Institute, the top 20 per cent of income-earning families in Canada already pay nearly two-thirds of all federal and provincial income taxes (63.2 per cent) while earning less than half of the country’s total income (44.1 per cent). These families are the only income group in Canada that pay a larger share of income taxes than their share of income.
Indeed, the remaining 80 per cent of Canadian families pay less in taxes than their share of total income. For example, the bottom 20 per cent of income-earning families pay 1.0 per cent of personal income taxes while earning 5.5 per cent of total income.
Why? Mainly because Canada, like most industrialized countries, has a progressive income tax system where individuals are taxed at increasingly higher rates as their income increases. For example, the marginal federal tax rate is 15 per cent on individual incomes up to $50,197, while income that exceeds $221,708 is taxed at more than double that rate (33 per cent).
When the analysis expands beyond personal income taxes to include the distribution of all taxes (payroll taxes, sales taxes, property taxes, etc.), high-income Canadian families still pay a disproportionate share of the country’s taxes. The top 20 per cent of income-earning families pay more than half (54.7 per cent) of all federal, provincial and local taxes while earning less than half of all income (44.1 per cent).
Since the top 20 per cent already shoulder the majority of the country’s tax burden, it’s unclear what the “Patriotic Millionaires” would define as their “fair share.”
That’s not to say we can’t improve our tax system. Indeed, there are some glaring inconsistencies with the tax rates people and businesses face despite earning the same level of income. Consider, for instance, that “contractors” doing the same work and earning the same income pay less taxes than an equivalent “employee.” Or that two different types of professionals, one who’s incorporated and one who isn’t, pay different taxes while earning the same income. Similarly, small corporations are taxed at significantly lower rates than larger companies, creating incentives to remain small. Addressing these inconsistencies would simplify the tax system and reduce distortions that arise from strategic tax planning and avoidance while lowering tax compliance and administration costs.
The “Patriotic Millionaires” are right to call for tax reform, but claims around the current state of “tax fairness” are misguided. Instead, policymakers should eliminate glaring inconsistencies in Canada’s tax system.