L’augmentation par Ottawa du taux d’imposition supérieur pour les particuliers (passant de 29 % à 33 %) qui a eu lieu en 2016 rapportera finalement au gouvernement moins que si elle n’avait jamais eu lieu.
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Canada’s tax competitiveness has returned as a focus of discussion in academic and political circles. The primary reason for this is a major tax overhaul in the United States that took effect in 2018, and which dramatically improved the US business investment environment and dropped personal income tax rates for almost all taxpayers.
The Canadian federal government and some of the provinces, on the other hand, have raised their income tax rates for many, especially high-income earners, in an attempt to generate more tax revenue. This is a concern for all Canadians, because income tax rate increases are known to have adverse impacts on economic activity. Further, the revenue effects of raising income tax rates greatly depend on taxpayers’ responsiveness to them. This leads to two questions. First, how responsive are taxpayers to tax rate increases? Second, can the Canadian federal government obtain more revenue by simply raising the income tax rate on high-income earners?
When budgetary challenges occur, as when planned or unplanned expenditures exceed revenue and public debt rises, governments often resort to raising income tax rates on high-income earners in an attempt to collect more tax revenue. The amount of additional revenue that governments can collect through income tax rate increases depends on how large the changes in tax rates are and for whom or what income levels—and taxpayers’ behavioural responses to those changes.
This study’s main objective is to investigate the revenue effects of the four percentage-point increase in the top federal personal income tax bracket rate, from 29 to 33 percent, that took effect in 2016 but was announced in the fall of 2015. The pre-announced increase in the tax rate would have been expected to encourage individuals to bring their income forward (for example, capital gains and dividends) to the 2015 tax year to avoid the new, higher income tax rate that would take effect in 2016.