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How Progressive is the Personal Income Tax System?

November 16, 2012

1-minute read

(Apologies if others have commented on this previously.)

The 2011 Tax Expenditures report by the federal Department of Finance includes an analysis of the progressivity of the federal personal income tax system.

What I find striking is just how weak the federal personal income tax is as a tool for shifting income from the affluent to the less affluent.

Table 8 shows that the top 20% of taxpayers  have 54.2% of pre tax income, and 50.6% of after tax income. Meanwhile, the bottom 40% have 9.7% of before tax income and 12.0% of after tax income. So, in and of itself there is not a lot of redistribution going on despite the fact that the effective tax rate does increase somewhat in line with rising income.

(Note that these calculations do not take into account the further impact of provincial income taxes. Also note that the redistributive impact of taxes and income transfers combined is much larger, since transfers paid for from taxes make up a much larger share of the income of the less affluent.)

In fairness, the top 1% - individuals earning more than $216,000 in 2008 - did face an effective federal tax rate of 20%, about double the average effective tax rate. Still, given that the progressive personal income tax is just one part of the overall tax system, there is good reason to pay more attention to tax fairness.

Andrew Jackson is Senior Policy Adviser with the Broadbent Institute and the Packer Professor of Social Justice at York University.


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