Ontario NDP Leader Andrea Horwath proposes an income tax increase for those who make more than $500,000 a year. These people, she says, aren’t paying their fair share. That’s a bit of a stretch. People who make more than $500,000 already work full-time for the state (federal, provincial and municipal) for perhaps eight months a year. It’s hard to say precisely how far into autumn Ms. Horwath would extend this indentured labour – but, then, who cares?
You might think that progressive politicians would appreciate the rich who, though collectively few in number, provide governments with disproportionate revenue. You would think wrong. For some reason, progressive politicians think high earnings are inherently evil.
Whatever the specific number of Ontarians who (Ms. Horwath says) aren’t paying their fair share, it will be relatively small. Approach an income of $90,000 a year (as 1.2 million Canadians do), and you find yourself in the odious top 5 per cent – the wage earners who pay 25 per cent of the country’s personal income taxes. Approach an income of $180,000 a year (as 237,000 Canadians do) and you find yourself in the more loathsome top 1 per cent. Approach an income of $2-million a year and you find yourself in the vilest income demographic of them all, the top 0.01 per cent.
Ms. Horwath proposes to add a further tax bracket that would (she says) add two percentage points to the highest federal-provincial combined tax rate. In fact, amplified by Ontario’s surtax on high incomes, it would apparently add three percentage points, moving the highest marginal rate from 46.4 per cent to 49.5 per cent and giving the government another $570-million a year to spend.
As part of a proposed budget deal with Premier Dalton McGuinty’s minority Liberal government, the New Democrats would share in the distribution of the spoils. But how much spoils would the Horwath Bracket produce? Ontario has no data base about people who make $500,000 a year, making the NDP revenue projection dubious at best. How many Ontarians earn more than $500,000? We don’t know. Assume for the moment that there are 20,000. In that case, each of them would need to pay another $28,500 in provincial income tax to produce $570-million in revenue. Assume for the moment that there are only 10,000. In that case, each would need to pay another $57,000.
Alternatively, each Horwath Bracket taxpayer could decide to earn less income (and to report less) – and escape the bracket completely. Kevin Milligan, an associate professor of economics at University of British Columbia, champions higher taxes for high-income earners, but he concedes that high income-tax rates can, indeed, cause reported incomes to decrease and revenues to fall. “If revenues drop a lot, it is possible in theory that we could see the new higher tax rate yield less revenue than the older lower tax,” he wrote last fall for the Report on Business’s online Economy Lab. “That is, we might be on the wrong side of the peak of the Laffer Curve.” The Laffer Curve postulates that there are two tax rates that can yield any given amount of revenue – one benign and low, the other destructive and high.
Canada appears to be probing the Laffer Curve for maximum spoils. Britain begins to collect its highest marginal rate at the Canadian equivalent of $234,000; the United States at $379,000. Canada introduces people to its highest rate at $128,800 – giving off a distinct sense that the highly paid should be punished as soon and as harshly as possible. Of all Canadians, Ontarians should understand the implications of a provincial policy of high-income tax rates: one-half of all top-tier wage earners in the entire country live in Ontario. (Only 20 per cent live in Quebec; 10 per cent live in Alberta.) If the government wants more money from high-wage earners, it needs to treat them civilly – not torment them.
The Fraser Institute reported that in 2011, tax freedom day for the average Canadian family, all taxes included, fell on June 6 (or June 24 when the deferred cost of government debt was included). Given the extraordinary revenue contribution of high-wage earners (exceptionally high income taxes, exceptionally high HST payments, exceptionally high property taxes), and calculated in absolute dollars, that special day for these folks almost certainly extends into August. Ms. Horwath would do well to thank them for their service to the state.