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You may want to note the revision, Stephen, because an earlier version of this post went out with a different conclusion (assuming no one held a gun to your head):

Applying these reductions to an initial tax base of $71.2b brings it down to somewhere between $68.2 and $70.4b, which implies that new revenues from the increased tax rate would be somewhere around $2.1b, give or take a half-billion or so.

And I'm done. I can't reproduce the Liberals' estimate of $3b, although I suppose I could if someone held a gun to my head.

To be sure, a $1b miss isn't really isn't much of a big deal, but then again, a billion here, a billion there, and pretty soon you're talking about real money.

“In 2015, it shouldn't be enough to plop a number like that into public debate without supporting documentation.”

I found the lack of attention in the campaign directed to this side of the bargain to be weird. Perhaps it was fear of making reference to anything that might be even be remotely construed as sympathetic to the 1 per cent. Or maybe more simply nobody cares.

Something a bit related you may be interested in for future analysis – or not – is that in roughly the last 7 years or so, the highest effective marginal tax rate on unadjusted taxable dividend income will have risen from 24 per cent to now a post-election 38 per cent (combined Fed/Ontario rate). That’s a nearly 60 per cent increase in the tax bill for each dollar of (grossed up) taxable dividend income now in the $ 200,000 plus zone. (The reasons include prior increases in marginal rates, a sequence of reductions in the corporate tax rate with complementary offsetting effects on the effective dividend rate, a change in the Ontario provincial treatment of the dividend tax credit, and this latest Liberal increase). Sympathy not, perhaps. But even so.

In the same vein, a 4 percentage point increase in the marginal rate is an 8 per cent increase in the tax bill on income in this zone.

Sock it to ‘em I suppose is the rule of the day.

Do you think there is any validity in the Carter Commission conclusion about tax rates at this level?

I think it's a matter of fairness that unearned income be taxed (at least) as much as earned income. This isn't even getting to the notion of progressivity, given the distribution of wealth. I remember Buffet saying that his total tax rate was lower than his secretary's, and most people would agree with him that there is something very wrong with that type of tax structure.

Of course, that could mean lowering the rates of one rather than raising the rates of other, but steps towards equalization of tax rates for capital and labor income shouldn't be viewed as "soaking" those who receive more capital income rather than labor income.

Why don't we have better data regarding elasticity parameters in Canada? The estimated range of 0.2 to 0.7 is huge. The Ontario $220k tax bracket has now been around long enough that surely we should be able to understand exactly what the impact of that new bracket was. (And in a sense it's a controlled experiment, because other provinces did not make the same move.)


Also, re: the point by rsj on "unfair" tax differences between capital and labour. In a theoretically closed economy I understand the rationale of wanting to incentivize investment, but in a world with $156 trillion in financial assets (http://www.businessinsider.com/156-trillion-global-financial-assets-2014-3) and where capital moves easily across borders, isn't it easy to attract sufficient capital to any project with decent prospects of achieving a decent return?

It seems to me that low capital gains taxes in the era globalized capital markets can only be explained by effective lobbying on the part of capital holders. It seems silly in such a context for a small open economy to offer such strong incentives to allow money to work for itself, and such a relatively strong deterrent (much higher labour taxes than capital taxes) against the effort and innovation that puts this capital to good use.

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