High-income earners pay disproportionate share of taxes despite Ottawa’s rhetoric

With its recent focus on “fairness,” the Trudeau government has reignited the debate around whether high-income earners pay their “fair share” of taxes. A new study, which sheds light on this ill-defined concept of “fair share,” finds that the top 20 per cent of income-earning families in Canada pay disproportionately more in taxes than all other income groups.

This year’s federal budget was titled “Fairness for Every Generation,” and like with past budgets, the Trudeau government once again raised taxes on Canadians by increasing the capital gains tax inclusion rate from 50 per cent to 66.7 per cent for all capital gains realized by businesses, and for gains exceeding $250,000 realized by individuals, to make “the very wealthiest… pay their fair share.”

Despite the government’s class warfare rhetoric, this change has broad implications for the economy and will increase taxes for many Canadians including those who wouldn’t be considered wealthy. It’s also the latest in a series of tax increases by the Trudeau government aimed at shifting more of the tax burden onto upper-income earners, and in each case the government has used “fairness” to justify these increases.

But while the Trudeau government claims that wealthy Canadians don’t pay their “fair share,” the evidence reveals a different story.

According to the study, in 2024 the top 20 per cent of income-earning families in Canada will pay 54.2 per cent of total taxes (income taxes, sales taxes, property taxes, etc.) to all three levels of government despite earning 46.4 per cent of total income. In other words, the top 20 per cent will pay the majority of taxes, and are the only income group that pays a larger share of taxes compared to their share of income. The bottom 80 per cent of families all pay disproportionately less in taxes than their share of income, with the bottom 20 per cent paying just 2.0 per cent of taxes while earning 5.0 per cent of income.

And when only examining personal income taxes, the results become even more disproportionate. The top 20 per cent of income-earning families will pay nearly two-thirds (62.7 per cent) of federal and provincial income taxes while earning less than half (46.4 per cent) of total income. Comparatively, the bottom 20 per cent of income-earning families will pay 0.8 per cent of personal income taxes.

Why? Because Canada’s personal income tax system is progressive, meaning as people’s taxable income rises, their marginal tax rate (the tax rate on the next dollar of income earned) also rises. Consequently, while higher earners pay more overall tax they also pay more on a per-dollar basis as income rises. This is why, for example, income at or below $55,867 is subject to a 15.0 per cent federal tax rate while income between $55,867 and $111,734 is subject to a 20.5 per cent tax rate.

Contrary to the Trudeau government’s ill-defined rhetoric, higher-income families pay the majority of taxes in Canada and are the only ones who pay disproportionately more compared to their share of income. Any honest conversation about tax fairness should start with the data and facts.