High marginal effective tax rates disproportionately impact low- and middle-income Canadians

A new study published by the Fraser Institute reveals that Canadian families and individuals with annual incomes between $30,000 and $60,000 are facing marginal effective tax rates near or above 50 per cent. This means that families with modest incomes are paying higher tax rates than those in the top income tax brackets.

The study, titled “Marginal Effective Tax Rates for Working Families in Canada,” highlights the challenges faced by low to middle-income families in Canada. The marginal effective tax rate (METR) measures the personal income taxes paid and the reductions in government benefits that result from earning an extra dollar. This creates a disincentive for earning additional income, as the financial benefits are offset by increased taxes and reduced government benefits.

Among the provinces, British Columbia has the lowest METR at 38 per cent for families earning between $30,000 and $60,000. On the other hand, Quebec has the highest METR at 67 per cent for families in this income bracket. Ontario’s METR for this bracket is 50 per cent, which is 6 percentage points higher than high-income families earning $300,000 or more.

The study emphasizes the need to prioritize METR reductions for low-income families to ensure fairness and efficiency in the tax and transfer system. The Fraser Institute, an independent Canadian public policy think-tank, aims to improve the quality of life for Canadians by studying and communicating the effects of government policies on their well-being.