The top 20 percent of income-earning families in Canada pay the lion’s share of the country’s taxes, a new report suggests.
This shows higher earning Canadians are already shouldering the majority of taxes, despite “common misperceptions” to the contrary, according to the authors of the report, released by the Fraser Institute.
In fact, Canada’s top income-earning families in Canada pay nearly 63 percent of the country’s personal income taxes, the study from the non-partisan think-tank found.
“The reality is these households pay a disproportionately large share of the total tax bill,” Fraser Institute director of fiscal studies Jake Fuss said in a press release.
When Ottawa announced an increase in capital gains taxes in Budget 2024, the hike was described as a way to ensure that Canada’s wealthiest citizens “pay their fair share.”
Prime Minister Justin Trudeau has defended the tax hike as a way to promote fairness for younger generations.
“We’re … asking people who are the absolute wealthiest in this country to contribute a little bit more,” he told reporters in April.
The key to understanding “fairness,” however, is comparing the share of income earned by one group with their share of total taxes paid, the Fraser Institute report said.
After doing the math, the authors found that the top 20 percent 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.
It found that this higher income group pays 62.7 percent of the country’s personal income taxes and 54.2 percent of its total taxes, while accounting for just 46.4 percent of Canada’s total income.
In comparison, the bottom 20 percent of income-earning families pay only 0.8 percent of all federal and provincial personal income taxes and 2 percent of total taxes while earning 5 percent of the total family income in Canada.
“The assertion that the top 20 percent of earners in Canada are not paying their fair share is simply not supported by the evidence,” Mr. Fuss said, adding that 80 percent of income-earning families outside of the top 20 percent paid less in total taxes than they earned in total income.
In 2021, for instance, the top 1 percent income group paid 22.5 percent of all income taxes, but accounted for just a 10.4 percent share of Canada’s total income.
Data from the top 10 percent income group was similar, according to StatCan. The figures showed that they paid 54.4 percent of all income tax, but had only a 34.4 percent share of the country’s total income.
Canadians are taxed based on their income level. The tax rate steadily climbs as salaries increase.
One example of that is the marginal federal tax rate, the report said. The tax rate is 15 percent on individual incomes up to $55,867 while incomes above $246,752 are taxed at 33 percent.
Raising taxes on higher income earners is often a government go-to for a revenue boost, but this philosophy ignores the “economic consequences” of tax rate hikes and the associated “behavioural responses of taxpayers when faced with higher tax rates or new taxes,” the authors wrote.
“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.”
