Reform taxes to build income pie: Study

C.D. Howe offers four recommendations to build the income base as boomers retire and labour force growth slows.

November 19, 2015   by PLANT STAFF

TORONTO — An aging population and slowing labour force growth shows Canada faces a deep, long-term challenge that requires greater productivity and competitiveness. A C.D. Howe report calls for tax system reform to meet these challenges.

Its Tax Reform Priorities for Canada: Creating More Wealth to Go Around study offers four recommendations:

• Keep business taxes low and competitive. Higher corporate taxes would hamper investment, job creation and growth. Canada has an internationally competitive corporate tax regime. Business taxes should be kept low to compete internationally while also treating businesses equally.

• Tax consumption instead of earnings. Economic efficiency would be enhanced by shifting the taxation base from personal income to consumption taxes – ideally harmonized between the federal and provincial governments. There are ways to minimize the adverse effects.


• Don’t target higher-income earners. The study calls targeting the big earners an inefficient way to raise revenues and deal with income inequality. Cutting the middle-income tax rate and putting in a new tax rate on income over $200,000 will barely change the benchmark for income inequality. The most effective way to address inequality is to remove barriers to opportunity.

• Rebalance federal and provincial taxation. The current practice of raising federal taxes in order to pay for transfers to the provinces is highly inefficient tax policy. It would be more efficient and productive if federal business and personal taxes were cut, allowing provinces to pick up the fiscal room to pay for economic and social priorities.

Click here for the report.

The C.D. Howe Institute is an independent not-for-profit research organization based in Toronto.

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