Saturday, September 23, 2023

Top 10% of income-earners earned 34% of Canada’s total income—yet paid more than 54% of total income taxes

Canada’s income-tax system is already highly progressive. The top 10% of income-tax filers pay over half of all income taxes. Comparing the share of the top decile’s income taxes with their income shows this measure of the relative burden of income taxes is the highest on record back to 1982. This groups includes people that few would consider high income, since the income threshold for an individual belonging to the top 10% was less than $100,000 in 2017. The distribution of income has not become more skewed over the past decade, as the share of income going to the top 10% has declined. This is contrary to the experience of most OECD countries over the past decade.

Government attempts to increase taxes on high incomes does not generate significant revenue, partly because so few people in Canada earn very high incomes and because their share of income has fallen. Tax evasion is quite rare among high incomes, as fewer than 1% avoid paying any income tax. On the contrary, the effective tax rate rises as income rises within the top decile, with the top 1% paying nearly half their income to taxes. However, high income taxes on upper-income Canadians can reinforce the decade-long trend to slower economic growth, the true source of the recent struggles of lower- and middle-income Canadians.

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