NCPA - National Center for Policy Analysis

Canada's Brain Drain

June 23, 1999

Canada has one of the worst tax systems in the world. As a consequence, it is losing increasing numbers of young and talented, who leave for the lower taxes of the U.S.

The aggregate number of emigres is only about 50,000 per year, but according to the C.D. Howe Institute in Toronto, Canada is losing its best-trained, most technically proficient college graduates. As many as 40 percent of recent graduates in science, medicine and management left the country in 1991 alone.

Taxes are the main reason for this brain drain, as documented in a new study from Vancouver's Fraser Institute:

  • The total tax burden of the typical Canadian family is 46 percent of cash income.
  • The top income tax rate is 46 percent (including provincial taxes) on an income of just $63,438 in Canadian dollars -- equivalent to $43,000 U.S.
  • At $43,000, a U.S. married couple filing jointly would still be in the 15 percent federal tax bracket; they would have to earn more than $283,000 to reach the top bracket of 39.6 percent.

The most significant effect of Canadian taxes on the brain drain may be in the area of capital gains.

  • Whereas the U.S. top rate on long-term capital gains is just 20 percent, Canadian investors pay the regular income tax rate on 75 percent of all gains.
  • With a top income tax rate of 46 percent, the top capital gains rate is 34.5 percent.
  • When the top U.S. rate falls to 18 percent in 2001, the Canadian rate will be almost double.

Tax reduction in Canada, therefore, is no longer a question of politics or even public policy. It is becoming a question of national survival.

Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, June 23, 1999.

 

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