NCPA - National Center for Policy Analysis


March 27, 2008

In a recent study, the Fraser Institute analyzed the benefits of reforming Canada's income tax system and replacing it with a flat tax, based closely on the model developed by American economists Robert Hall and Alvin Rabushka.

According to Fraser:

  • Canadians spend an estimated 30 billion dollars annually on complying with the country's complicated tax system.
  • The current system fails to ensure that individuals and households with similar income face similar tax burdens.
  • Tax rates that increase with income discourage people from saving, investing or working harder to earn more income and improve their lives.

Adopting a flat tax would not diminish government revenues, says Fraser:

  • In 2006, the Canadian federal government collected $143.1 billion in personal and corporate income tax revenues.
  • Generating the equivalent amount of revenue from Hall-Rabushka flat tax would require a rate of 15 percent
  • The Hall-Rabushka flat tax could be easily extended to the provinces as well; in order to maintain the same levels of revenue, provincial flat taxes world range for a low 6.1 percent in Newfoundland and Labrador to 15.5 percent in Quebec.

Hall and Rashbuka estimate that a federal flat tax in the United States would increase the total annual output of good and services produced by 6 percent.  Fraser estimates that if the same held true for Canada, the increase in GDP as a result of the federal 15 percent flat tax would amount to $2,646 per Canadian per year.

Source:  Alvin Rabushka and Niels Veldhuis, "A Flat Tax for Canada," Fraser Institute, February 2008. 


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