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Canadians are getting gouged on their taxes in relation to Americans, a new study finds.

A report from the Fraser Institute comparing Canadian provinces with American states and Washington, D.C. found that the provinces occupy the top nine jurisdictions for tax rates, with the highest combined marginal income tax rates.

A marginal tax rate is the percent you pay on your highest dollar income. The more income you make the more you are taxed.

Fraser Institute’s director of fiscal studies and co-author of the study, Jake Fuss, spoke to True North over the phone about his findings.

“Canadians are currently paying significantly higher tax rates than their American counterparts at all income levels,” Fuss said. “At a time when the national economy is stagnating. And there’s a need to improve our economic prospects. One policy option that could be targeted is reducing Canada’s personal income tax rates.”

According to the report Canadian provinces are uncompetitive with US jurisdictions when comparing personal income tax rates in Canadian dollars at the $300,000, $150,000, $75,000, and $50,000 income thresholds.

The study found Canada’s top combined income tax rate ranks the fifth highest out of 38 OECD countries.

“We do know from economic research that high income tax rates can deter professionals, entrepreneurs and business owners from working and investing in Canada, which is bad for the Canadian economy, and therefore Canadians as well,” Fuss said.

He said just as businesses compete to hire the best workers, jurisdictions also compete to attract and retain highly skilled individuals such as doctors and entrepreneurs who “contribute significantly” to the economy.

“Jurisdictions with relatively lower taxes generally enjoy a competitive edge and attract these highly productive individuals,” he said. “So you’re at a significant disadvantage when you have higher tax rates than other jurisdictions.”

The empirical research cited in the study demonstrates that highly skilled workers such as high-level inventors or national team-playing soccer players are “significantly influenced” by the effective top marginal tax rate when considering international migration.
“Ultimately, these highly skilled workers are going to locate themselves in other jurisdictions with lower tax rates,” Fuss said. “Those jurisdictions are now getting the tax revenues from those highly skilled workers. They’re also getting the benefits in their economy from having those entrepreneurs, professionals, business owners, doctors, and engineers.”

The report showed between 2009 and 2023, the federal and provincial governments in Canada increased personal income taxes on upper-income earners by raising the top marginal income tax rate.

Newfoundland and Labrador had the largest combined tax increase in the country having its combined top marginal income tax increased by 10.3%. Taking the province from one of the lowest combined top rates in the country in 2019 to the highest rate in 2023.

At the same time, Ontario’s combined top income tax rate increased by 7.1% and Quebec by 5.1%.