High personal tax rates at both the federal and provincial levels are damaging Canada's international competitiveness with the United States and other G7 nations, according to a Fraser Institute study published October 10.
With income tax rates ranging from 39% in Alberta to 48.22% in Quebec, and rates applying at lower levels of incomes than those in the other countries, Canada compares particularly poorly to the U.S.
"At an income level of $132,406 – the income level at which Canada's top federal tax rate applies – every province's combined provincial and federal marginal tax rate is higher than the combined federal/state tax rates in every U.S. state," the think tank said in a release.
Sean Speer, Fraser Institute associate director of fiscal studies, said, "Because of Canada's close proximity to the United States, the disparity in total income tax rates puts Canadian provinces at a real disadvantage.
"If Canada wants to encourage investment, business development, entrepreneurship and work effort, we need to lower marginal tax rates and increase the income thresholds at which they apply."
The study also argues that high marginal tax rates also affect investment, savings, labour supply and income reporting, saying that in a study of tax structures in 23 Organisation for Economic Co-operation and Development (OECD) countries, a 10% increase in marginal tax rates decreases a countries annual economic growth by 0.23%.
