Income tax increases in the Trudeau era have impeded the creation of thousands of businesses, shows a Montreal Economic Institute (MEI) study..The report “Encouraging entrepreneurship: billions of dollars of subsidies or tax cuts?” clearly favoured the latter..“The greedier the government gets, the less money individuals have left to finance their projects,” explains Emmanuelle B. Faubert, economist at the MEI and author of the study. “The result is that thousands of potential entrepreneurs have to delay their business ventures, which negatively effects employment, innovation, and productivity.”.The study explains each increase of one percentage point in the top marginal income tax rate reduces the business entry rate by 0.21 percentage points. Across the country, that means 2,455 fewer businesses created for each point of tax increase..Federal and provincial changes to top tax rates since 2015 have prevented the creation of an estimated 12,195 businesses, according to the author’s calculations..“We also estimate that the rate increases seen over this period entailed a reduction of approximately 15,518 self-employed people,” the author explains..“One reason for these effects is the impact of tax increases on capital accumulation, an essential element for starting one’s own business. Increasing income taxes on potential entrepreneurs reduces the funds available for creating and maintaining a business.”.In 2020, those in the top tax bracket were just 1.3% of all Canadian taxpayers, but pay 26% of net personal income taxes..By itself, the Trudeau government’s decision to raise the top marginal income tax rate by four percentage points in 2015 led to the loss of 9,820 potential Canadian businesses..This year, Ottawa expects to collect $2.88 billion from this increase in the top income tax rate..This is roughly equivalent to the production subsidies promised to Volkswagen and Stellantis by the federal and Ontario governments, namely $2.82 billion per year over a ten-year period..“For an equivalent amount than what we’re using to subsidize two companies, Ottawa could have had 9,820 more job creators by now if it had just left the money in taxpayers’ pockets,” adds Faubert..“Between attracting two large companies or allowing the creation of 9,820 more start-ups, the choice should be an easy one.”.The premise is simple, Faubert insists: “The more an activity is taxed — and entrepreneurship is no exception — the less incentive there is to pursue it.”.Manitoba kept its income tax rates steady during this time, but the other western provinces did not..BC eliminated a tax bracket in 2016, bringing the top provincial rate down from 16.8% to 14.7%. In 2018, the new NDP government changed course. They added a 16.8% bracket for incomes of more than $150,000 in 2018, and a 20.5% bracket for incomes of more than $220,000 in 2020..Alberta bumped up its top rate from 11.25% to 15% in 2016. Combined with federal increases, the highest effective marginal tax rate rose 7.75 percentage points, similar to the 7.7 increase in BC..Saskatchewan reduced its top rate from 15% to 14.75% in 2017-18 and then to 14.5% in 2018-19. This only partially compensated the federal increase, as the overall highest marginal tax rates was still 3.5 percentage points higher in 2020 than in 2015..The MEI is an independent public policy think tank with offices in Montreal and Calgary. Through its publications, media appearances and advisory services to policy-makers, the MEI aims to steer policy debate and reform towards sound economics and entrepreneurship.