A popular mantra among politicians is that higher-income earners don’t pay their ‘fair share’ of taxes. It’s a dog whistle the politicians use to get the votes of people who are not in the ‘higher-income category’ and many people believe it to be true. However, a new report from the Fraser Institute puts the truth to the mantra, showing high-income earners pay more than their share of taxes. The report, Measuring Progressivity in Canada’s Tax System, 2024 demonstrates the top 20% of Canadian income-earning families pay a larger share of total taxes, 54.2% (including personal income, sales and property taxes) than their share of income, 46.4%. “Despite the common misperception that top earners don’t pay their ‘fair share’ of taxes, the reality is these households pay a disproportionately large share of the total tax bill,” said Jake Fuss, director of fiscal studies at the Fraser Institute and co-author of the report. According to Fuss and co-author, Nathaniel Li, the key to understanding fairness “is comparing the share of income earned by one group compared to their share of total taxes paid,” they said in a release. “By this objective measure, the top 20% of income-earning families is the only group to pay a disproportionate share of the total tax burden compared to their share of income earned.” By comparison, the bottom 20% of income-earning families pay 2% of total taxes while earning 5% of the total family income, with the report finding that all 80% of income-earning families outside of the top 20% paid less in total taxes than they earned in total income. “The assertion that the top 20% of earners in Canada are not paying their fair share is simply not supported by the evidence,” Fuss said. The report also found the top 20% of income-earning families pay 62.7% of Canada’s personal income taxes, with the bottom 20% of income-earning families estimated to pay 0.8% of all federal and provincial personal income taxes and 2% of total taxes in Canada. “This is, in part, due to the progressivity of Canada’s tax system, where the share of taxes paid typically increases as income rises,” say the authors. “Individuals are taxed at higher rates, by both the provinces and federal government, on income above certain thresholds.” “For example, the marginal federal tax rate is 15% on individual incomes up to $55,867, while income that exceeds $246,752 is taxed at more than double that rate (33%). Furthermore, some low-income families do not pay any personal income tax because their tax credits and deductions are greater than the amount of taxes owed.” .The politicians’ dog whistles include raising taxes on higher-income earners, pandering to Canadians not in the top 20%, which is a larger voter's bloc, but with economic ramifications, say Fuss and Li. “Raising taxes on high-income earners ignores the economic consequences of tax rate increases and the associated behavioural responses of taxpayers when faced with higher tax rates or new taxes,” they say. “In response to a tax increase, many taxpayers will change their behaviour in ways that reduce their taxable income through tax planning, avoidance, or evasion that results in governments raising less revenue than anticipated.”“Tax increases also reduce Canada’s competitiveness with other industrialized countries, particularly the United States. Specifically, increasing taxes on top income earners makes Canada a less attractive place to live and to work for highly-skilled people such as doctors, scientists, managers and software engineers.”
A popular mantra among politicians is that higher-income earners don’t pay their ‘fair share’ of taxes. It’s a dog whistle the politicians use to get the votes of people who are not in the ‘higher-income category’ and many people believe it to be true. However, a new report from the Fraser Institute puts the truth to the mantra, showing high-income earners pay more than their share of taxes. The report, Measuring Progressivity in Canada’s Tax System, 2024 demonstrates the top 20% of Canadian income-earning families pay a larger share of total taxes, 54.2% (including personal income, sales and property taxes) than their share of income, 46.4%. “Despite the common misperception that top earners don’t pay their ‘fair share’ of taxes, the reality is these households pay a disproportionately large share of the total tax bill,” said Jake Fuss, director of fiscal studies at the Fraser Institute and co-author of the report. According to Fuss and co-author, Nathaniel Li, the key to understanding fairness “is comparing the share of income earned by one group compared to their share of total taxes paid,” they said in a release. “By this objective measure, the top 20% of income-earning families is the only group to pay a disproportionate share of the total tax burden compared to their share of income earned.” By comparison, the bottom 20% of income-earning families pay 2% of total taxes while earning 5% of the total family income, with the report finding that all 80% of income-earning families outside of the top 20% paid less in total taxes than they earned in total income. “The assertion that the top 20% of earners in Canada are not paying their fair share is simply not supported by the evidence,” Fuss said. The report also found the top 20% of income-earning families pay 62.7% of Canada’s personal income taxes, with the bottom 20% of income-earning families estimated to pay 0.8% of all federal and provincial personal income taxes and 2% of total taxes in Canada. “This is, in part, due to the progressivity of Canada’s tax system, where the share of taxes paid typically increases as income rises,” say the authors. “Individuals are taxed at higher rates, by both the provinces and federal government, on income above certain thresholds.” “For example, the marginal federal tax rate is 15% on individual incomes up to $55,867, while income that exceeds $246,752 is taxed at more than double that rate (33%). Furthermore, some low-income families do not pay any personal income tax because their tax credits and deductions are greater than the amount of taxes owed.” .The politicians’ dog whistles include raising taxes on higher-income earners, pandering to Canadians not in the top 20%, which is a larger voter's bloc, but with economic ramifications, say Fuss and Li. “Raising taxes on high-income earners ignores the economic consequences of tax rate increases and the associated behavioural responses of taxpayers when faced with higher tax rates or new taxes,” they say. “In response to a tax increase, many taxpayers will change their behaviour in ways that reduce their taxable income through tax planning, avoidance, or evasion that results in governments raising less revenue than anticipated.”“Tax increases also reduce Canada’s competitiveness with other industrialized countries, particularly the United States. Specifically, increasing taxes on top income earners makes Canada a less attractive place to live and to work for highly-skilled people such as doctors, scientists, managers and software engineers.”
