“Canadians vs. Americans: Who Pays More Taxes?
In a recent study by the Fraser Institute, Canadians are facing a stark reality – they are getting gouged on their taxes compared to their American counterparts. The report compared Canadian provinces with American states and Washington, D.C., revealing that the provinces hold the top nine spots for tax rates, with the highest combined marginal income tax rates.
Unpacking the Tax Rates
A marginal tax rate is the percentage you pay on your highest dollar income, meaning the more you earn, the more you are taxed. According to Jake Fuss, the director of fiscal studies at the Fraser Institute, Canadians are currently paying significantly higher tax rates than Americans at all income levels. This comes at a time when the national economy is stagnating, sparking a need to improve economic prospects – with one solution being to lower Canada’s personal income tax rates.
The Impact on the Economy
The study also found that Canadian provinces are lagging behind US jurisdictions in terms of personal income tax rates at various income thresholds, including $300,000, $150,000, $75,000, and $50,000. Canada’s top combined income tax rate ranks the fifth highest out of 38 OECD countries, highlighting the need for reform.
Attracting Top Talent
High income tax rates can deter professionals, entrepreneurs, and business owners from working and investing in Canada, which can be detrimental to the economy. Jurisdictions with lower taxes often have a competitive edge in attracting highly skilled individuals who contribute significantly to the economy. As a result, higher tax rates put Canada at a disadvantage compared to other jurisdictions.
The Way Forward
The study’s empirical research shows that highly skilled workers are influenced by the top marginal tax rate when considering international migration. This means that countries with lower tax rates are benefiting from the presence of entrepreneurs, professionals, business owners, doctors, and engineers, while Canada may be losing out on this valuable talent.
In Conclusion
Between 2009 and 2023, federal and provincial governments in Canada increased personal income taxes on upper-income earners, leading to a significant rise in top marginal income tax rates. If Canada wants to remain competitive and attract top talent, there may be a need to reevaluate its tax policies. By reducing personal income tax rates, Canada could create a more attractive environment for professionals and entrepreneurs, ultimately benefiting the economy and Canadians as a whole.”
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