For people including me who does not support the more progressivity tax system, the main argument is that the rising of the marginal tax rate on upper income earner will stunt economic growth, decrease labour supply, reduce reported income and make Canada has less competitiveness. There are lots of research papers that evaluate the relationship between the high marginal tax rate and the economic and found that higher marginal tax rate is correlated with the drop in the economic growth. D. Romer and H. Romer investigated the effect of the U.S tax reforms on GDP and concluded that a tax increase of 1% of GDP lowered output by maximum 3% (24). Usually, when tax rate increase, the investment will increase due to the lower interest rate. However,
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For example, they reviewed Padovano and Galli's paper. Padovano and Galli by using data for 23 OECD countries from 1951 to 1990, verified the negative relation and concluded that "an increase of 10 percentage point in marginal tax rates decreased the annual rate of economic growth by 0.23 percentage points" (5). These papers verify that the higher marginal tax rate will harm the economy. When there is a change in the personal income tax system, there will generally be two types of impact, one called the net primary impact and another called behavioural response impact. According to the office of the parliamentary budget officer (POB), the net primary impact is "the estimated increase or decrease in federal revenues and expenses resulting from tax rate changes applied to the existing tax base" (4). The behavioural response has two types, one is the real economic behaviour (labour supply may change) and another is the efforts to reduce taxable income(6). The behavioural response based on the assumption for the elasticity of taxable income(ETI). "The ETI measures the changes in taxable income in response to changes in marginal tax …show more content…
Emmanuel and Veall used data from 1972 to 2000 by looking at the top 1% of Canadian reported income share of aggregate national income, reach the conclusion that "a 10 percent increase the top marginal tax rate will reduce reported taxable income by 1.7 percent" (19). They also reviewed the analysts at the federal Department of Finance. By using data from 1994 to 2006, the analysts at the federal Department of Finance concluded that " a 10 percent increase in marginal tax rates would reduce reported taxable income by 2 percent for Canadians in the top 10 percent of tax filers, by 3 percent for those in the top 5 percent of tax filers, and by between 6.2 and 7.2 percent for Canadians in the top 1 percent of the taxable income distribution" (19-20). These papers reach to the conclusion that the higher marginal tax rate will make people report less income to the government, especially for the richest. Beside these impacts for the people who live in Canada, it is also important to look at Canada from the world perspective, as examine Canada's competitiveness. If we only look at the federal personal income tax system, then Canada is competitive relative to other G-7 countries, however, the combined marginal tax rate make Canada less
For example, they reviewed Padovano and Galli's paper. Padovano and Galli by using data for 23 OECD countries from 1951 to 1990, verified the negative relation and concluded that "an increase of 10 percentage point in marginal tax rates decreased the annual rate of economic growth by 0.23 percentage points" (5). These papers verify that the higher marginal tax rate will harm the economy. When there is a change in the personal income tax system, there will generally be two types of impact, one called the net primary impact and another called behavioural response impact. According to the office of the parliamentary budget officer (POB), the net primary impact is "the estimated increase or decrease in federal revenues and expenses resulting from tax rate changes applied to the existing tax base" (4). The behavioural response has two types, one is the real economic behaviour (labour supply may change) and another is the efforts to reduce taxable income(6). The behavioural response based on the assumption for the elasticity of taxable income(ETI). "The ETI measures the changes in taxable income in response to changes in marginal tax …show more content…
Emmanuel and Veall used data from 1972 to 2000 by looking at the top 1% of Canadian reported income share of aggregate national income, reach the conclusion that "a 10 percent increase the top marginal tax rate will reduce reported taxable income by 1.7 percent" (19). They also reviewed the analysts at the federal Department of Finance. By using data from 1994 to 2006, the analysts at the federal Department of Finance concluded that " a 10 percent increase in marginal tax rates would reduce reported taxable income by 2 percent for Canadians in the top 10 percent of tax filers, by 3 percent for those in the top 5 percent of tax filers, and by between 6.2 and 7.2 percent for Canadians in the top 1 percent of the taxable income distribution" (19-20). These papers reach to the conclusion that the higher marginal tax rate will make people report less income to the government, especially for the richest. Beside these impacts for the people who live in Canada, it is also important to look at Canada from the world perspective, as examine Canada's competitiveness. If we only look at the federal personal income tax system, then Canada is competitive relative to other G-7 countries, however, the combined marginal tax rate make Canada less