A flat tax for Canada

July 31, 2012

Free Market Foundation

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