Flat tax system would benefit most Canadians

One tax system being reviewed for Canadian tax reform is the flat tax. Under a flat tax all income is taxed only once and at the same rate.

In addition to its economic benefits, proponents say a flat tax would achieve greater fairness: households with similar incomes would face similar tax burdens and single and two-income households would be treated more equally.

Canadian researchers analysed various representative families and diverse incomes to compare the amount owed under the current income tax system with what taxpayers would owe under the flat tax. Here are some specific examples – which assume a federal flat tax rate of 18.2 percent (replacing income tax revenues only), a personal exemption of C$8,766 and a C$2,000 per child exemption. Taxpayers would not be taxed on the exempt amounts of income, making the flat tax progressive (higher income taxpayers would pay a greater proportion of their income in taxes than lower-income taxpayers).

An individual with no children and an average income (C$37,635) currently pays C$7,920 in income taxes; with the flat tax the individual would pay C$7,736, for a reduction of C$184 or 2.3 percent.

A two-parent, two-child household with a low income (C$24,849) currently pays C$1,213; with the flat tax the family would pay C$164, for a reduction of C$1,094 or 86.6 percent.

A two-parent, two-child household with a high income (C$98,585) currently pays C$26,581; with the flat tax the family would pay C$20,844, for a reduction of C$5,737 or 21.6 percent.

In the above examples, all taxpayers pay less, but the high-income, highly taxed family experiences the largest reduction. Therefore the tax burden is somewhat equalised.

Source: Joel Emes and Jason Clemens, Flat Tax, Principles and Issues, Critical Issues Bulletin, April 2001, Fraser Institute, 4th Floor, 1770 Burrard St. Vancouver, B.C., V6J 3G7, (604) 688-0221.

For study text http://www.fraserinstitute.ca/publications/critical_issues/2001/flat_tax/ind ex.html

For more on Tax Liability Under a Flat Tax http://www.ncpa.org/pi/taxes/tax71.html#2