Liberal tax hike on rich led to $4B revenue drop

Trudeau’s Class-Warfare Tax Hike Produces Less Revenue | International Liberty - Dan Mitchell:

January 7, 2019 - "Canada in recent decades has been 'very sensible' with regard to economic issues (spending restraint, welfare reform, corporate tax reform, bank bailouts, regulatory budgeting, the tax treatment of saving, school choice, and privatization of air traffic control). But 'very sensible' is not the same as 'totally sensible'....

"The nation’s current top politician, Justin Trudeau ... increased the top tax rate from 29 percent to 33 percent after taking office in late 2015. In the real world, however, ... increasing tax rates is not the same as increasing tax revenue. From a story in the Globe and Mail:

The Liberal government’s tax on Canada’s top 1 per cent failed to produce the promised billions in new revenue in its first year, as high-income earners actually paid $4.6-billion less in federal taxes.… The latest available tax records show that revenue from Canadians earning about $140,000 or more – which had previously been the fourth and highest tax bracket – dropped by $4.6-billion in 2016, the first full year that the Liberal tax changes were in effect. Further, 30,340 fewer Canadians reported incomes in that range for 2016 compared with the year before. …The new top bracket with a 33-per-cent tax rate was predicted to raise about $3-billion a year in new revenue… 

"[S]ome of the foregone revenue might be the result of one-time changes, such as upper-income taxpayers shifting income from 2016 to 2015 (rich people do have considerable control over the timing, level, and composition of their income). A report from Global News reviews ... the degree to which revenues dropped for transitory reasons::

Finance Minister Bill Morneau’s office ... has maintained that the revenue drop for 2016 was a one-off event.… But an analysis of the data that adjusts for the impact of the dividends maneuver and economic factors still shows that the tax hike would have fallen far short of the hype.… Studies have shown that top earners are more likely than lower-income taxpayers to react to tax increases by reducing their taxable income. This may be because the wealthy have access to more sophisticated tax advice, are more easily able to shift assets to lower-tax jurisdictions or can afford to simply decide to work less given that they get to keep less of their money....

"[E]xperts at the C.D. Howe Institute believe the central government will eventually collect more revenue from the higher tax rate, but:

1. The revenue will be less than projected by static revenue estimates because of permanently lower levels of taxable income.
2. The added revenue for the central government is more than offset by lower tax receipts for subnational levels of government.

"In other words, Trudeau’s tax hike was a big mistake. The only tangible results are that the private sector is now smaller and the country is less competitive."

Read more: https://danieljmitchell.wordpress.com/2019/01/07/trudeaus-class-warfare-tax-hike-produces-less-revenue/
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