Wednesday, January 2, 2013

Provincial Taxes Are Still Regressive

In the previous post I made some estimates of the provincial tax burden of individuals according to income level.  I used CRA data for the income tax part, but I was forced to make some assumptions about sales, gas and tobacco taxes.  I think the assumptions were reasonable, but they were only rough guesstimates and not empirically derived.

Since then, I've found a CCPA study that estimates tax incidence for lots of different taxes in Canada.  It's not perfect for my purposes because the data is Canada-wide not Newfoundland specific, but we can try using their numbers as a check that my earlier estimates are reasonable.  

The CCPA lumps together HST, gas, and tobacco into a category they call "commodity taxes". Their estimated tax rate (see table 1) is for the whole country and includes GST. To get something appropriate for Newfoundland I scaled their rate by 0.85.  This factor was chosen to make the total tax collected about equal to revenue in recent budgets.  I end up with the following chart:

The chart is pretty similar to what I had before, except that the share of income going to taxes starts dropping off for income levels over $85K - roughly the richest 5% of tax filers. The textbook reason for this is that the wealthy save a large share of their income and there is no sales tax on money that isn't spent.

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