A recent study by the C.D. Howe Institute says the tax on the rich that NDP leader Andrea Horvath exacted from the minority Liberal government to pass the budget may end up reducing revenue over the long run.
As of this month, the provincial income tax rate for those earning more than $500,000 will increase from 17.4 per cent to 20.5 per cent. The combined federal/provincial rate will go from 46.4 per cent to 49.5 per cent.
C.D. Howe's Alexandre Laurin, author of the report “Ontario’s Tax on the Rich: Grasping at Straw Men,” says that wealthy taxpayers have a number of choices. Some will likely do nothing, but others may work less, migrate to a lower tax jurisdiction, engage in more aggressive tax planning, or change the timing of when and how they are paid to reduce taxes.
Laurin says the research suggests that high-income earners reduce their taxable income by about two per cent in the short term, and by more than 10 per cent in the long run as they slowly adjust to the change.
Based on this, he projects extra tax revenue of about $450 million in 2013, falling to about $200 million by 2016 (in constant dollars), to nearly zero in 2019, and to a loss of about $200 million by 2027. The province’s top one per cent of earners already shoulder more than one-quarter of all income taxes, while the bottom 75 per cent payabout 12 per cent.
The government has said the tax raise will be removed once the provincial deficit is eliminated in about six years, but the report notes that “temporary” taxes have a way of becoming permanent. For example, the Ontario surtax implemented in 1986 by a Liberal-NDP coalition has never been removed.
While there is no doubt that the affluent can more easily move to a tax haven or take advantage of tax loopholes, a 3.1 per cent tax increase on $500,000 is only $15,500. Only time will tell whether this new tax levy will be “the straw” that significantly changes the behaviour of the majority of the top tier of taxpayers.
What do you think? If you were a wealthy taxpayer, how would you react to the new Ontario taxes on the rich?
Ontario
As of this month, the provincial income tax rate for those earning more than $500,000 will increase from 17.4 per cent to 20.5 per cent. The combined federal/provincial rate will go from 46.4 per cent to 49.5 per cent.
C.D. Howe's Alexandre Laurin, author of the report “Ontario’s Tax on the Rich: Grasping at Straw Men,” says that wealthy taxpayers have a number of choices. Some will likely do nothing, but others may work less, migrate to a lower tax jurisdiction, engage in more aggressive tax planning, or change the timing of when and how they are paid to reduce taxes.
Laurin says the research suggests that high-income earners reduce their taxable income by about two per cent in the short term, and by more than 10 per cent in the long run as they slowly adjust to the change.
Based on this, he projects extra tax revenue of about $450 million in 2013, falling to about $200 million by 2016 (in constant dollars), to nearly zero in 2019, and to a loss of about $200 million by 2027. The province’s top one per cent of earners already shoulder more than one-quarter of all income taxes, while the bottom 75 per cent payabout 12 per cent.
The government has said the tax raise will be removed once the provincial deficit is eliminated in about six years, but the report notes that “temporary” taxes have a way of becoming permanent. For example, the Ontario surtax implemented in 1986 by a Liberal-NDP coalition has never been removed.
While there is no doubt that the affluent can more easily move to a tax haven or take advantage of tax loopholes, a 3.1 per cent tax increase on $500,000 is only $15,500. Only time will tell whether this new tax levy will be “the straw” that significantly changes the behaviour of the majority of the top tier of taxpayers.
What do you think? If you were a wealthy taxpayer, how would you react to the new Ontario taxes on the rich?
Ontario
