A new report from the Fraser Institute reveals that high-income families in Canada shoulder a disproportionately large share of the nation's tax burden. The study warns that increasing tax rates on this group could lead to unintended economic consequences, such as tax avoidance and evasion.
Top Earners Pay More Than Their Share of Income
Using data from Statistics Canada’s Social Policy Simulation Database and Model (SPSD/M), the report shows that the top 20 per cent of income-earning families pay nearly two-thirds (65.3 per cent) of all personal income taxes and more than half (58.3 per cent) of total taxes. This exceeds their share of total family income, which stands at 49.5 per cent.
In contrast, the bottom 20 per cent of income-earning families are estimated to pay just 0.7 per cent of all federal and provincial personal income taxes and 1.7 per cent of total taxes, while earning 4.3 per cent of total family income. According to the report, the share of total income received by this group is over six times larger than their share of income taxes paid.
Progressivity of Canada's Tax System
The Fraser Institute defines the top 20 per cent of income-earning families as those with an income above $270,472, while the bottom 20 per cent earn less than $63,068. The report attributes the vast difference in tax burden partly to the progressivity of Canada’s tax system, where the share of taxes paid typically increases as income rises.
For instance, the bottom 20 per cent of income-earning families pay an average income tax rate of 2.7 per cent, while the top 20 per cent pay an average rate of 23.1 per cent. The top 20 per cent was the only group that paid a higher share of income tax than share of income, and also the only group that paid a higher share of total taxes than their share of income. Total taxes include sales taxes, property taxes, fuel taxes, and liquor taxes.
Challenging Misperceptions
The report challenges the common misperception that top earners do not pay their fair share of taxes. “The idea that top earners don’t pay their ‘fair share’ of taxes ignores the evidence that these families pay a disproportionately large share of the total tax bill,” said Jake Fuss, director of fiscal studies at the Fraser Institute, in a news release.
Jake Fuss added that increasing taxes on high-income earners is often seen as an effective way to generate additional government revenue, but the evidence suggests otherwise. Previous research has shown that tax increases on top earners can lead to behavioural changes such as tax planning, avoidance, or evasion, which reduce taxable income and result in governments raising less revenue than anticipated.
Breakdown by Income Quintiles
The report provides a detailed breakdown by income quintile. Quintile 2, which includes Canadians with incomes between $63,089 and $111,354, paid 6.5 per cent of total taxes, compared to their 9.3 per cent share of total income. Quintile 3 paid 12.7 per cent of total taxes with 14.6 per cent of total income. Quintile 4, with incomes between $171,299 and $270,472, paid 20.8 per cent of total taxes compared to a 22.3 per cent share of total income.
The findings underscore that the top 20 per cent are the only group contributing more in taxes relative to their income, while lower quintiles pay a smaller share. The report concludes that policymakers should consider these disparities before pursuing tax increases on high-income families, as such measures may not yield the expected revenue gains.
