A flat tax for Canada

In a recent study, the Fraser Institute analysed the benefits of reforming Canada's income tax system and replacing it with a flat tax, based closely on the model developed by American economists Robert Hall and Alvin Rabushka.

According to Fraser:

  • Canadians spend an estimated 30 billion dollars annually on complying with the country's complicated tax system.

  • The current system fails to ensure that individuals and households with similar income face similar tax burdens.

  • Tax rates that increase with income discourage people from saving, investing or working harder to earn more income and improve their lives.

    Adopting a flat tax would not diminish government revenues, says Fraser:

  • In 2006, the Canadian federal government collected $143.1 billion in personal and corporate income tax revenues.

  • Generating the equivalent amount of revenue from a Hall-Rabushka flat tax would require a rate of 15 per cent

  • The Hall-Rabushka flat tax could be easily extended to the provinces as well; in order to maintain the same levels of revenue, provincial flat taxes would range from a low 6.1 per cent in Newfoundland and Labrador to 15.5 per cent in Quebec.

    Hall and Rashbuka estimate that a federal flat tax in the United States would increase the total annual output of goods and services produced by 6 per cent. Fraser estimates that if the same held true for Canada, the increase in GDP as a result of the federal 15 per cent flat tax would amount to $2,646 per Canadian per year.

    Source: Alvin Rabushka and Niels Veldhuis, A Flat Tax for Canada, Fraser Institute, February 2008.

    For text: http://www.fraserinstitute.org/COMMERCE.WEB/product_files/Fraser_Forum_Feb2008_Full.pdf

    For more on Taxes: http://www.ncpa.org/sub/dpd/index.php?Article_Category=20

    FMF Policy Bulletin/ 01 April 2008 & 26 January 2010
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