James Alexander Michie: Increase in taxes by one percent results in reduced income | Financial Post

Financial Post
Canada Revenue Agency James Alexander Michie

Ottawa's tax hike on the one per cent ended up lowering government revenues

Author: James Alexander Michie

A study has emerged by the C.D. Howe Institute, which shows that due to higher taxes, provincial budgets have been affected by fiscal losses greater than the federal revenues collected, thus establishing the federal government’s decision to increase taxes on one percent of those that Most likely, they earned only about one third of the tax revenues that would have been collected without what is known as the “behavioral response,” meanwhile, this also resulted in provincial budgets suffering fiscal losses greater than federal revenues collected.

In fact, it has been said that over the years, various economists have long argued that a government can only raise taxes so high before the rate itself creates a psychological barrier to work so that The reduction of economic activity by those with high incomes leads to a reduction in tax revenues.

Likewise, according to the Commission, it was established, “We are convinced that high marginal tax rates have an adverse effect on the decision to work … (and) on the decision to save … We believe that there would be great merit in adopting a maximum marginal rate no greater than 50 percent. With a maximum marginal rate, taxpayers would be sure that at least half of all profits would be theirs after taxes. We believe that there is a psychological barrier to the greater effort … when the state can take more than half of the potential gain. ”

Now, due to previous studies, it is understood that sometimes higher incomes, when faced with an increase in the tax rate, can have an unexpected change and their behavior could vary in different ways, one of them could be that the high rates of Taxes can discourage additional income and can also encourage the movement of taxable income to different forms, times and jurisdictions. The high rates may not only negatively affect the economy, but may also reduce government revenues, as shown in the study.

Take a read: https://business.financialpost.com/personal-finance/taxes/ottawas-tax-hike-on-the-one-per-cent-ended-up-lowering-government-revenues

Source: Jamie Golombek | Financial Post

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