Raising an extra dollar in personal income tax costs the Canadian economy $2.86 – Lake Superior News

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SUDBURY, THUNDER BAY, SAULT STE MARIE, ONTARIO ~~~~~ April 30, 2022 (LSNews) For every additional dollar ($1) of personal income tax revenue collected by the federal government, $2.86 is lost in economic activity due to less investment, less entrepreneurship, less spending and other behavioral changes that narrow the tax base, according to a new study released today by the Fraser Institute, an independent, nonpartisan Canadian public policy think tank.

The same goes for corporate taxes, with an extra dollar ($1) of corporate income tax levied by the federal government costing Canadians more than double that amount in lost economic activity (2. $02).

“When governments raise tax rates, they affect the behavior of workers, businesses, entrepreneurs and investors. Specifically, higher tax rates distort decisions related to starting a business, saving and investing, working effort, and expanding an existing business, which impose all cost to the economy in the form of lost prosperity. So when a government raises tax rates, the real cost to the economy is much higher,” explained Bev Dahlby, senior fellow at the Fraser Institute and co-author of What Are the Economic Costs of Raising Revenue by the Canadian Federal Government?

The study concludes that since tax increases negatively affect private sector savings, labor supply and investment decisions, society loses more than the government collects in revenue. actual taxes.

In fact, for every additional dollar of personal income tax that the federal government collects, the real cost to Canadians–because of these changes in behavior–is $2.86, and $2.02 an additional dollar of corporate income tax that is collected.

“When the federal government raises taxes, the cost to Canadians is not just increased taxes, it means less investment, less entrepreneurship and less business activity and ultimately a tax base. lower tax burden, which imposes invisible costs on Canadians,” said Dahlby.

“Policy makers need to be aware of the true costs of raising taxes, as this can inform cost-benefit analysis of government programs, tax reforms, and the design of federal transfers to provinces. »

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The Fraser Institute is an independent, non-partisan research and education organization based in Canada. We have offices in Calgary, Montreal, Toronto and Vancouver. Visit our website
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