A Responsible Plan for Income Tax Cuts
October 6, 2016
Many economists believe that advanced economies, including Canada, are in a situation where economic growth is going to be chronically slow, around 1% instead of the 4% we were used to until not long ago.
A period of slow economic growth means that most Canadians will not have any significant wage increase for several years. Finding a job would become more difficult.
The biggest challenge of our time is to get out of this economic stagnation. The pace of growth will determine if we can continue to improve our standard of living and that of our children.
Two weeks ago, I announced a four-point plan to encourage private investment, increase productivity and boost the long-term growth potential of our economy.
Another way to put money directly into Canadians’ pockets and encourage work, savings and investment is of course to cut personal income taxes.
Our current tax regime has very high rates that make it uncompetitive compared with U.S. tax rates and those of other industrialized economies. The Liberal government’s decision to create a new tax bracket at 33% made it even worse.
When we combine federal and provincial rates, the top personal income tax rate in Canada now stands at 54 per cent. That makes it the sixth highest among the 34 OECD industrialized countries.
Meanwhile, our tax code has become an absurdly complicated mess full of holes in it. Every year, Canadians are wasting between $6 billion and $7 billion just to comply with our tax code. Every federal budget brings new tax deductions and tax credits that make it more complicated.
Several of these boutique tax breaks are essentially politically motivated subsidies that were adopted to buy the support of some specific groups at the expense of the rest of the population.
Researchers at the Frontier Centre for Public Policy have also shown that some of these tax credits are disproportionately beneficial to the wealthy.
The best tax system is simple. It’s easy to understand. And it keeps administrative and compliance costs as low as possible.
It is also fair. It does not favour some groups at the expense of others.
Finally, it is efficient. It minimizes economic distortions, and encourages taxpayers to work, save and invest.
There is a very large consensus among economists that this is the type of reform that is needed to make our economy more productive and to stimulate growth. The last time we had such a major tax reform was three decades ago.
Prime Minister Brian Mulroney’s Conservative government cut the top marginal tax rate from 34% to 29%; reduced the number of tax brackets from ten to three; and eliminated a series of tax exemptions and deductions.
Today, I propose to implement a similar tax reform if I am elected leader of the Conservative Party of Canada and Prime Minister.
First, I propose to reduce the number of tax brackets from five to two. Today, we have income tax rates of 15%, 20.5%, 26%, 29% and 33%.
My plan is first to eliminate the new 33% bracket introduced in the Liberal budget as well as the 20.5%, 26% and 29% tax brackets.
The 15% tax bracket would be kept. It would apply on taxable incomes of up to $100,000. Above that level, a new maximum rate of 25% would apply.
I also propose to increase the basic personal amount on which nobody pays taxes from $11,474 to $15,000.
This tax reform will bring several benefits.
First, the vast majority of Canadian taxpayers would pay a single rate of 15% on their income. In other words, they would pay a 15% tax on their income from $15,000 to $100,000.
Today, Canadians move to a higher tax bracket as soon as they make $45,000. And then move to even higher brackets when they make more than $90,000.
With my plan, only a small minority of taxpayers, about 8%, would pay a 25% tax on incomes in excess of $100,000.
Another important benefit is that ALL taxpayers would pay less taxes, not just the middle class and the wealthy who would benefit from lower marginal rates.
The increase in the basic personal amount will bring a $500 tax cut for all taxpayers who make at least $15,000 in taxable income. About 1.5 million more taxpayers with a low income would not be paying any income tax anymore.
It’s easy of course to promise tax cuts. The difficult part is to implement them, and implement them responsibly.
A rough estimate is that this reform would reduce the federal government’s revenues in the short term by about $30 to $35 billion.
I have already signed a pledge to reduce the federal budget to equilibrium within two years of being elected, and not running any deficit after that outside of exceptional circumstances.
My government is going to cut taxes gradually, over the course of several budgets, only as the fiscal room is found to allow it. There will be no tax cut financed by borrowed money.
How will this be achieved?
First, billions of dollars can be found by reducing the number of tax credits and exemptions. The Fraser Institute estimated in a recent study that there are at least fifty such tax expenditures, worth $20 billion, that should be considered for elimination. I propose to review them and eliminate all those that are inefficient and don’t have a compelling policy objective.
Second, I have made it clear in my campaign so far that my goal is to reduce the size of the federal government. I believe it intervenes in way too many fields and wastes billions of dollars. The current government is going to go from a balanced budget to a $30 billion deficit in only one year after ramping up spending. There is no reason to believe it is unrealistic to reduce taxes by the same amount over several years. I will put an end to that orgy of spending, stop the growth of government and return the savings to taxpayers.
And third, the $30 to $35 billion number is a static estimate. It doesn’t take into account the dynamic positive effects of tax cuts on economic growth. Just like my plan to encourage private investment is going to boost economic growth, cutting income taxes will encourage Canadians to work, save and invest more.
To give an example, government revenues increased by almost $11 billion between 2013-14 and 2014-15. Program expenses increased by only $5 billion. That allowed our government to post its first budget surplus since the recession of 2008. A government that controls spending while the economy is growing will have the fiscal room to cut taxes if it makes it a priority. I will make it my priority.
The four themes of my campaign are freedom, responsibility, fairness and respect.
My plan is to FREE our economy from the burden of heavy taxation so that it grows faster.
To RESPECT hard-working Canadian taxpayers and give them back some of their money.
To stop using our tax system for political ends and make it simpler and more FAIR.
And to implement this reform in a RESPONSIBLE way, without burdening future generations.
I’m asking members of the Conservative Party of Canada, and all Canadians, to support me in achieving this objective.
Current federal income tax rates
|0 – $11,474(Basic personal amount)||0%|
|$11,475 – $45,282||15%|
|$45,283 – $90,563||20.5%|
|$90,564 – $140,388||26%|
|$140,389 – $200,000||29%|
Income tax rates under my plan
|0 – $15,000(Basic personal amount)||0%|
|$15,001 – $100,000||15%|