Over the past two decades there's been a widely held consensus in Canada that higher taxes are detrimental to our economy's competitiveness and don't even necessarily bring more money into government coffers.
One of the main contenders to the NDP leadership, Brian Topp, has broken with this consensus and is proposing to increase taxes by $18 billion a year.
Topp claims that "more and more income and wealth has been concentrated in the hands of the wealthiest Canadians." He is therefore targeting "profitable corporations" and individuals who make more than $250,000 a year.
This proposal rests on the widespread belief that wealthy Canadians don't pay much taxes and that if they only paid their "fair share," we could get rid of the deficit and continue to fund increasingly onerous social programs.
The reality is that in Canada, those who declare revenues above $250,000 make up only 0.7% of taxpayers, but pay 20% of all the revenues Ottawa collects in income tax. Actually, those rich pay taxes that represent twenty-eight times their demographic weight!
Topp's own numbers also show that even by hiking the top tax bracket for this group of taxpayers by over 20% (from 29% to 35%), only $3 billion more a year would flow into government coffers. That would barely make a dent in this year's federal deficit, expected to be over $30 billion.
Numbers for Quebec show a similar pattern. The Montreal Economic Institute calculated that to get rid of the province's relatively moderate deficit of $3.8 billion this year, the top provincial tax rate for those whose declared incomes are over $250,000 a year would need to go so high that their combined federal-provincial rate would climb above. 100%! Of course this is impossible since few people would continue to work beyond a certain threshold anyway if almost every cent of extra income earned went straight to the government. Actually, this phenomenon would occur way before we get to a 100% combined marginal tax rate.
So, if taxing the rich will not really help solve our fiscal problems, where would Topp find the additional money? In the pockets of those working families he says he wants to help. That indeed would be the result of raising $11 billion more a year on corporations.
Why? Corporations are legal fictions that do not really pay taxes. Their tax burden is simply shifted onto actual physical individuals such as their shareholders (through smaller dividends), their clients (through higher prices for their products) or their employees (through lower salaries and other benefits).
A Montreal Economic Institute publication published a year ago shows that since workers are less mobile and have fewer choices than capital owners or consumers, they are actually the first to suffer from corporate tax hikes.
One way or another, all Canadians will not escape paying higher taxes if we keep increasing government spending as we have in recent years. The current Conservative government has actually boosted it by a whopping 22% in its first five years in power. Some NDP provincial governments have actually been more conservative in this regard.
So Brian Topp and his NDP colleagues would contribute a lot more to the well-being of "ordinary Canadians" if they promised to reverse this trend of spending, instead of accelerating it.
Michel Kelly-Gagnon est président et directeur général de l'Institut économique de Montréal.
* Cette chronique est publiée dans les journaux de Sun Media, tant dans ses quotidiens présents dans plusieurs des marchés urbains canadiens les plus importants (Toronto, Ottawa, Calgary, Edmonton, Winnipeg et London) que dans ses 28 quotidiens régionaux.