The newly-elected Parti québécois government wants to (among other things) eliminate the 'health tax' introduced in the 2010 budget and make up the shortfall by introducing two new tax brackets at the top end of the income distribution:
- 28% for taxable incomes above $130,000
- 31% for taxable incomes above $250,000
The current top Quebec rate is 24%, and it applies to taxable incomes above $78,000. The top federal rate of 29% kicks in at around $130,000, so the (net of the 16.5% Quebec abatement) federal + provincial top rates will be
- for taxable incomes above $130,000: 29*(1 - 0.165) + 28 = 52.215% (up from 48.215%).
- for taxable incomes above $250,000: 29*(1 - 0.165) + 31 = 55.215% (up from 48.215%).
If you assume that there are no behavioural responses to the new tax rates - that is, if you perform a static analysis - new revenues work out to around $835m. But if you incorporate the sort of behavioural responses based on available data - 'dynamic scoring' - you find that revenues will more likely to be half that, and probably less.
I'm going to work through the math below the fold.