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October 10, 2013 | EST. READ TIME 2 MIN.

The Economic Costs of Increased Marginal Tax Rates in Canada

Economists often focus on marginal tax rates (the extra tax an individual (or firm) will owe to the government for engaging in a little more of the taxed activity) as particularly important for altering economic behaviour. The marginal tax rate is significant because it indicates the amount of tax a person will pay for an additional dollar earned. An extensive literature documents that taxes?particularly progressive income and capital taxes?reduce economic growth, saving and investment, business formation, and job creation.

Superficially, with a top federal personal income tax rate of 29 percent, Canada appears to enjoy the lightest tax burden among the G7 countries and Australia. However, this appearance is deceptive. Canada places a relatively greater emphasis on provincial taxation than do other countries in its peer group. For example, both Quebec and Ontario have steeply progressive income tax codes, with top rates of 24 and 18.97 percent, respectively.

Also, the top marginal rate kicks in at different thresholds around the world: in Canada, personal income tax thresholds are typically lower than in the other reference countries. In fact, both the federal top rate and the threshold at which that top rate kicks in are low compared to other countries. Taken together, these two adjustments put Canada?s tax rates somewhere in the middle of those in the peer countries, underscoring the need for federal and provincial tax relief and reform if Canada wishes to build on past improvements and its current success.

The most obvious solution to the relatively high total burden is income tax reform, particularly at the provincial level. The principles for income tax reform are straightforward: flatten rates and broaden the tax base (by reducing or eliminating tax credits, deductions, etc.).

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Niels Veldhuis

President, Fraser Institute

Niels Veldhuis serves as President of the Fraser Institute, Canada’s most influential think tank.In his over 20-plus-year career in public
policy, Niels has authored six books and more than 50 peer-reviewed studies on a wide range of economic topics. In 2011, he was awarded (along with his co-authors) the prestigious Sir Antony Fisher International Memorial Award for the best-selling book, The Canadian Century.Highly regarded for his opinions and perspectives on major economic and social issues, Niels appears regularly in the media across Canada and the United States. He has written hundreds of commentaries that have appeared in over 50 newspapers, including the Globe and Mail, Wall Street Journal, National Post, and The Economist.Known for his ability to explain matters of economics and government policy in a down-to-earth and easily understood manner, Niels travels widely across North America. His speaking engagements extend to diverse audiences, including business groups, corporate gatherings, community organizations, and students.Niels has had the privilege of sharing the stage and moderating discussions with prominent business and political leaders from around the world. Notable individuals include Prime Minister Stephen Harper, Prime Minister Brian Mulroney, and BC Premier Gordon Campbell. He has also moderated discussions with distinguished Canadian journalists such as Chantal Herbert, Andrew Coyne, and Rex Murphy, as well as diplomats such as Canada’s Ambassador to China and Israel’s Ambassador to Canada. Niels moderated a discussion between United States Presidents Bill Clinton and George W. Bush in 2011 and has facilitated conversations with impactful authors like Mosab Hassan Yousef (author of "Son of Hamas") and Lord Conrad Black.Niels Veldhuis is an alumnus of Simon Fraser University, was one of Vancouver’s Top 40 under 40 by Business in Vancouver in 2010, and is a member of the Young Presidents’ Organization (YPO).
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Robert P. Murphy

Senior Fellow, Fraser Institute

Robert P. Murphy is a Senior Fellow at the Fraser Institute and Chief Economist at Infineo and author of the widely acclaimed book,
Choice: Cooperation, Enterprise, and Human Action. He is also a Senior Fellow with the Mises Institute. He received his Ph.D. in economics from New York University. Previous positions include Research Assistant Professor with the Free Market Institute at Texas Tech University, Visiting Assistant Professor of Economics at Hillsdale College, Senior Economist at the Institute for Energy Research, Visiting Scholar at New York University, Research Analyst at Laffer Associates, and Senior Fellow in Business and Economic Studies at the Pacific Research Institute. Prof. Murphy runs the blog, Free Advice and hosts the podcast, The Bob Murphy Show. He is the author of The Politically Incorrect Guide to Capitalism, The Politically Incorrect Guide to the Great Depression and the New Deal, The Study Guide to Man, Economy, and State with Power and Market, The Human Action Study Guide, The Study Guide to The Theory of Money & Credit by Ludwig von Mises, and Lessons for the Young Economist. He has also written hundreds of economics articles for the layperson, has given numerous radio and television interviews on such outlets as Fox Business and CNBC, and is active on Twitter (@BobMurphyEcon).
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Jason Clemens

Executive Vice President, Fraser Institute

Jason Clemens is the Executive Vice President of the Fraser Institute and the President of the Fraser Institute Foundation. He
has an Honors Bachelors Degree of Commerce and a Masters Degree in Business Administration from the University of Windsor as well as a Post Baccalaureate Degree in Economics from Simon Fraser University. Before rejoining the Fraser Institute in 2012, he was the director of research and managing editor at the Ottawa-based Macdonald-Laurier Institute and prior to joining the MLI, Mr. Clemens spent a little over three years in the United States with the San Francisco-based Pacific Research Institute. He has published over 70 major studies on a wide range of topics, including taxation, government spending, labor market regulation, banking, welfare reform, health care, productivity, and entrepreneurship. He has published over 300 shorter articles, which have appeared in such newspapers as The Wall Street Journal, Investors Business Daily, Washington Post, Globe and Mail, National Post, and a host of U.S., Canadian, and international newspapers. Mr. Clemens has been a guest on numerous radio and television programs across Canada and the United States. He has appeared before committees of both the House of Commons and the Senate in Canada as an expert witness and briefed state legislators in California. In 2006, he received the coveted Canada’s Top 40 Under 40 award presented by Caldwell Partners as well as an Odyssey Award from the University of Windsor. In 2011, he was awarded (along with his co-authors) the prestigious Sir Antony Fisher International Memorial Award for the best-selling book The Canadian Century. In 2012, the Governor General of Canada on behalf of Her Majesty the Queen, presented Mr. Clemens with the Queen Elizabeth II Diamond Jubilee Medal in recognition of his contributions to the country.
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