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Milke: Alberta’s flat income tax system was no 'failure'
Wednesday, 6 January 2016 - 7:45am
ust before Albertans launch into the new, high-tax universe in 2016, take a moment to memorialize one of the smartest things an Alberta government ever did — the introduction of a single-rate tax system, courtesy of Ralph Klein’s government.
In 2001, in announcing the new tax system, then Treasury Board President Steve West said that, “There are two ways to establish a progressive tax system. One is to tax high income earners at a very high level; the other is to tax low-income earners at a very low tax level.”
As West put it, the Klein government “decided to take the most compassionate approach and not tax low-income earners at all.”
Indeed, Ralph Klein and his colleagues provided a generous basic exemption that removed 200,000 Albertans from provincial tax rolls. It then applied a single 10 per cent tax rate on income above that exemption.
That tax had its critics. Last year, ex-Premier Jim Prentice body-slammed Alberta’s 10 per cent single tax system. He claimed it was unfair to the working poor. “It is a system which bites them pretty hard, compared to the rest of the country” said Prentice in January 2015.
Prentice was wrong, but he had company. When Alberta Premier Rachel Notley killed off the single rate tax, she called it a “brief and unfortunate experiment.”
Fact check: Start with the most recent tax data available (in 2012) for everyone who paid provincial income tax. Then compare Alberta with other provinces.
For those who earned less than $50,000, and lived in Prince Edward Island, they paid the highest proportion of any province’s total income tax revenues, at 34 per cent.
The proportion for the under-$50,000 crowd was similarly high elsewhere in Atlantic Canada, but lower in other provinces. For example, Manitobans with taxable incomes under $50,000 paid about 25 per cent of their province’s total income tax take. The range was about 13 per cent in Saskatchewan, Ontario and British Columbia.
But no other province touched Alberta for fairness. Albertans who earned less than $50,000 (and paid income tax — plenty do not) paid just nine per cent of all provincial income tax revenues in 2012 — the lowest ratio in the country.
So Alberta’s smart flat tax — a generous basic exemption with an easy-on-the-eyes 10 per cent tax rate for all— was very fair to those who earned less than $50,000.
How about those who earned between $50,000 and $99,999? Such tax filers, on average across Canada, paid roughly one-third of their province’s income tax bills. In Alberta, the proportion was nearly the same.
So who paid the greatest share of Alberta’s income tax collections under the single rate system? Those with taxable incomes above $100,000.
In Alberta, 18.9 per cent of all tax filers reported a taxable income of $100,000 or more. Their share of all taxable income was almost 45 per cent. They paid 58 per cent of provincial income taxes — more than in any other province.
The Canada-wide average in 2012 was as follows: Those with taxable incomes above $100,000 represented about 11 per cent of all tax filers; they accounted for 30 per cent of all taxable income; they accounted for just under 51 per cent of all provincial income tax revenues.
In 2012, a lot of Albertans made a lot of money and paid a lot of income tax. That helps explain the proportions. (That’s a good argument for pro-growth economic policy by the way; the rich carry more of the tax burden). But the claim that the single tax was unfair to the working poor (Jim Prentice), or a “failed experiment” (Rachel Notley), is bunk.
Fact is, the single tax system was progressive — see the above numbers. It’s just that the new provincial government prefers that other option Steve West referenced in 2001: the one that taxes higher income earners at a very high level.
Mark Milke is a regular Herald contributor. He was author of a 1998 report to the Alberta Income Tax Review Committee calling for a single income tax rate.
MARK MILKE, FOR THE CALGARY HERALD
Published on: January 9, 2016 | Last Updated: January 9, 2016 3:00 AM MST