Fresh Takes

Over-taxation can drive people nuts—and away

A new Stanford University study finds California’s “soak the rich” tax hike drove outmigration of the rich up by 40%. The measure increased the top marginal tax rate for Californians with a million dollars or more of income by three percentage points—from 10.3% to 13.3%. The resulting exodus alone ate up nearly half of what the tax was supposed to raise.

Losing the rich means losing the companies and jobs they sustain. Politicians may be happy to sacrifice those jobs so they can grab more taxes, but this actually hurts regular people.

Here in Canada, the federal government recently fiddled with Canada’s fiscal environment and reaped similar results. When elected in 2015, the Liberals created a new income tax bracket that raised the top tax rate from 29% to 33% for incomes over $200,000. Expected to raise nearly $3 billion the first year, the changes effectively reduced the taxes collected from high-income earners by $4.6 billion!

Neither the Californian example nor the Canadian one comes as a surprise to economists. But here as there, politicians are just now discovering a fact that some of us have been tirelessly repeating for years: Too much tax kills tax.

As the New Year brings income tax hikes across the 4 provinces that don’t index for inflation—Alberta, Saskatchewan, Nova Scotia, and PEI—provincial politicians might learn this lesson, and choose people.

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