Make the rich pay? They already do, Fraser Institute study says

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Upper-income Canadians already pay a disproportionate share of taxes, and taxing them at ever higher rates could backfire in terms of increasing government revenue, according to a new study by the fiscally conservative Fraser Institute.

“Measuring Progressivity in Canada’s Tax System, 2023” by Jake Fuss and Nathaniel Li, says the top 20% of Canadian families with incomes of more than $243,799 annually pay almost two-thirds (61.9%) of federal and provincial personal income taxes and more than half (53.1%) of total taxes.

By contrast, the bottom 20% of income-earning families are estimated to pay 0.7% of all federal and provincial personal income taxes and 2.0% of total taxes.

The study also says only the highest 20% of income earning families pay a larger share of total taxes than their share of total income, compared to other families.

While this is to be expected given that income taxes in Canada are paid on a progressive basis — the more a family earns the more it pays, proportionately, in taxes —  the study says “there is a common misperception … that top income earners do not pay their (fair) share of taxes and that increasing taxes on this income group is an effective way to generate significant additional government revenue.”

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The problem, the study says, it that raising taxes on high-income earners ignores the economic consequences of doing so, which ultimately can result in less revenue for the government and harm the overall economy.

“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 U.S., because 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 …

“The notion that top income earners do not pay their share of taxes rests on a shaky foundation” and a lack of  “analysis of how people respond to taxes.”