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By Charles Lammam
and Hugh MacIntyre
The Fraser Institute
For months, the Trudeau government has used the term tax fairness to justify higher taxes on entrepreneurs and incorporated professionals.
While what’s a fair distribution of taxes is never defined by the government, such rhetoric fuels the misperception that Canada’s top earners collectively get away with paying very little tax. And if that were true, it would certainly be cause for concern.
The reality, however, is quite different. Canada’s top earners pay a disproportionate and growing share of the country’s taxes.
An objective way to assess fairness is to compare the share of total taxes paid by top earners to the share of total income they earn. If these shares are proportional, then this signals a fair distribution of taxes.
While the Trudeau government seems preoccupied with income taxes, to properly measure the share of taxes paid by top earners we must look beyond income taxes. Canadians pay a myriad of other federal, provincial and local taxes, including payroll taxes, sales taxes, property taxes, fuel taxes, carbon taxes, profit taxes, import taxes, alcohol taxes and more. A complete assessment of tax fairness must also account for these taxes.
In a recent study, the Fraser Institute measured the distribution of total taxes in Canada. The top 20 per cent of income-earning families is the only group that pays a bigger share of taxes than the share of income they earn. They pay 55.6 per cent of all federal, provincial and municipal taxes while earning 49.1 per cent of the country’s total income.
All other Canadian families, with incomes lower than the top 20 per cent, pay proportionally less in total taxes than they earn in income. For instance, the bottom 20 per cent pays 1.8 per cent of all taxes while earning 4.1 per cent of total income.
But what about the top one per cent? This group features prominently in discussions of tax fairness and inequality, so let’s look at the amount of taxes these Canadians pay.
Canadian families in the top one per cent pay 14.7 per cent of all federal, provincial and local taxes, which is almost 40 per cent higher than their 10.7 per cent share of Canada’s total income. In fact, the top one per cent paid approximately the same amount of taxes as the bottom half of Canadian families (14.6 per cent) who collectively earn 20.2 per cent of the country’s income.
Not only does the top one per cent pay a disproportionate share of the Canada’s taxes, its share has increased over the past two decades – from 11.3 per cent in 1997 to 14.7 per cent today.
By the objective fairness standard of paying taxes proportional to the share of income earned, raising taxes on Canada’s top earners can’t be justified. Particularly when it comes to personal income taxes, the focus of Prime Minister Justin Trudeau’s government.
The imbalance between personal income taxes paid and income earned is even larger for top earners.
The top 20 per cent pays nearly two-thirds of all income taxes (64.4 per cent) while earning approximately half of all income (49.1 per cent). And the top one per cent pays 17.9 per cent of income taxes while earning 10.7 per cent of all income.
Canadians should not be misled by rhetoric on tax fairness – the top earners pay a disproportionate share.
Charles Lammam and Hugh MacIntyre are co-authors of the Fraser Institute study Measuring the Distribution of Taxes in Canada: Do the Rich Pay Their Fair Share? available at www.fraserinstitute.org
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