We would need to raise taxes on the “rich” to over 100% in order to eliminate Quebec’s deficit

Montreal, December 6, 2011 – Voices are being heard, in Europe, in the United States and here in Canada (notably Brian Topp's), calling for a tax hike on the “rich” in order to address massive levels of government debt. An Economic Note published today by the Montreal Economic Institute (MEI) explains that to eliminate the Quebec government’s $3.8-billion deficit for this year, the income tax rate for those earning $250,000 or more would have to rise above 100%. “It is very unlikely that people will be motivated to work, save or invest if the taxman confiscates their entire earnings above a certain threshold,” quips Michel Kelly-Gagnon, president and CEO of the MEI and the publication’s author.

The tax contribution of the “rich” is substantially greater than their share of income, contrary to popular belief, since both in Quebec and at the federal level, personal income taxes are strongly progressive. According to the Canada Revenue Agency, the 4.9% of Canadian taxpayers declaring incomes from $100,000 to $249,999 paid 25% of all personal federal income taxes in 2009 (five times their demographic weight). As for the 0.7% of Canadian taxpayers earning $250,000 or more, they paid 20% of federal income taxes (28 times their demographic weight).

“Taxing the ‘rich’ can seem like a seductive solution, but it does not hold water when you look at the facts. Those who say they want to balance the budget through taxation should be honest enough to admit that the taxes of all workers would have to become more burdensome, not just those of taxpayers considered to be well-off,” explains Mr. Kelly-Gagnon.

In light of these figures, it becomes clear that the attempt to balance the budget, here as elsewhere, should begin with a reduction in government spending. Simply by returning to the 2009-2010 level of expenses, a mere two years ago, the Quebec government would spend $6 billion less and find itself with a $2.2-billion surplus on its hands. “Just slowing the growth rate of government spending, which is the current goal, is not enough. It is perfectly realistic to imagine absolute spending reductions. In Quebec, for example, reducing per capita business subsidies to Ontario’s level would save $2.5 billion a year,” proposes the publication’s author.

The Economic Note entitled Can We Pay Down the Deficit by Further Taxing the “Rich”?, prepared by Michel Kelly-Gagnon, president and CEO of the MEI, in collaboration with Youri Chassin, economist at the MEI, can be consulted free of charge on our website.

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The Montreal Economic Institute is an independent, non-partisan, not-for-profit research and educational organization. Through its publications, media appearances and conferences, the MEI stimulates debate on public policies in Quebec and across Canada by proposing wealth-creating reforms based on market mechanisms. It does not accept any government funding.

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