Brian Lee Crowley

Alberta’s flat tax: both progressive and useful, killed off for ideological reasons

In my time in public policy I have heard a lot of rubbish talked about a lot of issues, but one that must win some kind of prize in the area is Alberta’s much-maligned “flat tax”, now due to be axed by Rachel Notley’s New Democrats. The reason given? The tax is “regressive” and is to be replaced with a supposedly “progressive” multi-band or multi-rate income tax modelled on that found in the other provinces. But as my latest Economy Lab column for the Globe’s ROB lays out in some detail, the notion that the flat tax is not progressive is an old canard unworthy of anyone with a calculator and five minutes to think through the issues. So not only does the criticism fail (and therefore the case for eliminating the flat tax on “progressivity” grounds), it leaves out of account the important experiment it represented. Multi-rate income taxes undoubtedly create disincentives to work as you move up the income scale. Those disincentives are removed by a flat tax. Federalism is supposed to foster such bold experiments to test whether old policy prescriptions can be improved through innovation. The flat tax deserved to live….both because it was progressive and because it was telling us something about possible future directions for tax reform.

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Income splitting and tax fairness with a coda on flat taxes

Income splitting is often portrayed by its opponents as an inexplicable effort to give tax relief to the already wealthy at the expense of everyone else. I think that is an egregious mischaracterisation. The reason for income splitting is that it fixes a terrible unfairness in the tax system whereby similarly-situated (in terms of income) couples pay wildly varying amounts of income tax solely because of how the income is distributed between the spouses. This violates a basic principle of taxation that like should be treated alike. I explain the point in my latest piece for the Globe’s Economy Lab feature in the ROB.

As one of my correspondents pointed out in response to the column, it can be true that income splitting is a correct response to an injustice in the tax system, and yet not be the right thing to choose to do at this moment if you have a spare $2bn or so kicking around at budget time. I absolutely agree. Governing is about choosing and it is perfectly fair to criticise the Tories for having chosen this over the many other things they could have spent the money on. It is still important, however, to lay out the rational case for income splitting and evaluate the policy choice on its merits….

Also check out my Twitter feed for a discussion about why a flat tax would not resolve the issue of the interaction between individual taxation and household tax treatment that income splitting seeks to resolve.

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Brian Lee Crowley