Low- and middle-income earners carry higher tax burden

Fraser Institute report shows impact of income on marginal effective tax rates

Low- and middle-income earners carry higher tax burden
Steve Randall

Canadian families and individuals with modest incomes are hardest hit by marginal effective tax rates according to a new study.

The Fraser Institute says that those earning between $30,000 and $60,000 a year face a marginal effective tax rate of almost 50%.

The rates measure the personal income taxes paid and the reduction in government benefits resulting from earning an extra dollar, or the combination of taxes you pay and benefits you lose as you make more money.

“Canadians with modest incomes face extremely high marginal effective tax rates, often higher rates than Canadians in top income tax brackets,” said Finn Poschmann, resident scholar at the Fraser Institute.

Individuals and families in Quebec face the highest rates in Canada at 53% when earning $30-60K while those in the province earning more than $300,000 have a marginal effective tax rate of 44%. At some income levels the rate soars to 70%.

“High marginal effective tax rates reduce the gains some families achieve by working more, which can discourage people from working more and increase reliance on government benefits,” Poschmann said.

The lowest rate in Canada
The rate is lowest in Alberta for those earning $30-60K (38%) and for high-income earners (40%) while in Ontario both moderate incomes and high incomes mean a marginal effective tax rate of 44%.

The national average is 46%.

“If policymakers want to help lower-income Canadians climb the income ladder and become more prosperous, they should reform the tax system so it encourages work— not discourages it,” Poschmann said.

The figures are from the study Marginal Effective Tax Rates Across Provinces: High Rates on Low Income by Philip Bazel, an associate at the School of Public Policy at the University of Calgary.