This year marks the 100th birthday of Canada’s federal personal income tax (PIT). Back in 1917, a modest PIT was introduced as a “temporary” measure to fund First World War military efforts.

Of course, as President Ronald Reagan said there’s often “nothing as permanent as a temporary government program.” So here we are a century later, with an income tax that has not only stayed on the books, but grown substantially. In 1918, personal income taxes accounted for 2.6 per cent of federal revenue. Today, that figure stands at 51 per cent.

On top of the federal income tax, all of Canada’s provinces have also introduced significant personal income taxes. The combination of high federal and provincial income tax rates has hurt Canada’s competitiveness in the global economy.

For example, Ontario. Once you factor in personal and federal taxes, Ontario’s top combined PIT rate stands at 53.5 per cent—that’s the second highest rate in North America, and one of the highest rates in the developed world.

This tax burden puts us at a competitive disadvantage in attracting high earners (and therefore major contributors to provincial tax revenue) relative to neighbouring jurisdictions. Ontario’s top combined personal income tax rate is approximately 5 percentage points higher than our famously high-tax neighbour New York state (although New York City residents pay a municipal income tax as well).

When you look at our fellow Great Lakes manufacturing states, the gap is even bigger—the top personal income tax rate in both Michigan and Illinois, for example, are both about 10 percentage points lower than Ontario’s.

And the problem isn’t just that Ontario’s combined income tax rates are high, it’s that our high rates kick in at a lower level of income than many of our neighbours. For neighbouring American states, the top combined income tax rate kicks in at earnings levels roughly twice as high as in Ontario.

How badly do these high personal income taxes hurt the provincial economy?

New research suggests that the answer is “quite badly.” In fact, University of Calgary economist Bev Dahlby recently showed that raising one dollar of revenue in Ontario through the provincial PIT costs $7 in lost economic activity.

This means Ontario’s uncompetitive PIT rates impose significant costs on the provincial economy with negative implications not just for high earners that pay them directly but for everyone who relies on a robust economy to generate good jobs and growing incomes.

Another important cost of the PIT, which is front of mind for many people right now, is the burden of complying with complicated tax rules. Since Canada’s PIT was introduced it has gotten more and more complicated, and therefore more costly and time-consuming, to comply with the tax—approximately $500 per Canadian household, according to recent research.

That’s money families could otherwise use to cover daily expenses, save for retirement, or spend on a small luxury. Instead, it’s gobbled up by the cost of simply complying with complicated tax rules.

Of course, governments need to raise money to fund services. But they should try to do so in a way that minimizes both compliance costs and economic harm to the economy.

In Canada generally, and Ontario specifically, the policy status quo when it comes to the personal income tax is failing these important tests.