The Frontier Centre for Public Policy today released a new study that examines a single-rate tax system, or “flat tax”, a taxation system that exists in over 25 countries, in Alberta, and in several U.S. states. The study, Five Single-Rate Tax Thoughts notes how another two Canadian provinces–New Brunswick and now Saskatchewan, have had the single rate tax proposed from within government.
The Frontier study from senior policy analyst David Seymour questions whether the current system where higher income levels are taxed at multiple, higher rates is worthwhile or effective.
The paper notes “five quick thoughts” in favour of the single-rate system:
• Over 25 nations now have it, most of which adopted in the past two decades. Of those countries, none have abandoned it. This popularity does not make the single rate tax desirable just for that reason, but at the very least shows it is workable;
• The professed rationale behind taxing higher incomes at multiple higher rates–the current system–is to ensure higher income earners pay more. However the net economic effect of introducing a tax is not only to reduce incomes, but also raise the price of goods those income earners produce. People should be aware that the cost of income tax is shared between workers and consumers, and that in certain economic conditions it may be consumers who pay the lion’s share of the additional rates on higher income;
• Income is most often a function of age. In Saskatchewan the average earner between 45-54 years old earns almost two-and-a-half times more than the average 20-24 year old. Therefore one of the greatest effects of higher tax rates on higher income is to simply shift the taxpaying between different stages of life–and to an age where family breadwinners need more income, not less, in order to finance mortgages and the needs of children in the household;
• There is a moral question regarding whether it is right to have a system which allows a majority of voters to prey on a minority who earn higher incomes. Multi-rate systems break the principle of equality before the law and arguably lead to resentment amongst different members of society as the tax system encourages predatory voter behaviour;
• Income is not wealth. Much of the rhetoric around “taxing the rich” misses the point that not all wealth passes through the income tax system. Warren Buffet’s famous observation that he pays a lower rate of tax than his secretary is a prime illustration of this point. Clarifying the language of the tax discussion from talking about wealth to income would not only be technically more correct, but would also change the nature of the discussion.
“The movement toward the single rate tax around the world has shown that single rate taxes are workable,” says the study’s author David Seymour. “Canadian provinces and indeed the government of Canada should start to consider why other jurisdiction are adopting the single rate tax and whether they too could better serve citizens by issuing one rate of tax on citizens.”
Download a copy of Five Single-Rate Tax Thoughts here:
For more information and to arrange an interview with the study’s author, media (only) should contact:
Troy Media Corporation