The Fraser Institute published an opinion piece on their blog, and in Sun Media newspapers, claiming that an increase in the tax rate on the richest 1% caused revenues to actually fall in 2016.

They reach this conclusion by comparing the tax collected from people with incomes above $250,000 in 2016 with the tax collected from this group in 2015, showing a drop in tax revenue of $4.8 billion in 2016. The Fraser Institute suggests that the cause of this drop is the tax increase on the richest 1%.

But this is a superficial and misleading analysis. A deeper look at historical tax data shows what really happened: rich Canadians shifted their reported income into the 2015 tax year to avoid paying the higher tax rate in 2016. As should be obvious, however, this shift can only be done once — those in the top income bracket will not be able to avoid the higher tax rate in future years.

We can see this by looking at tax data from years prior to 2015. Between 2011 and 2014, tax revenue from the $250,000+ income bracket averaged $24.4 billion. The amount of tax collected from this group grew by an average 5.5% each year during this period.

However, in 2015 we see a sharp spike in tax revenue collected from the top income bracket, growing by 19.18% to nearly $32 billion. This happened because the amount of reported income increased to $161 billion in 2015 from $134 billion in 2014.

This large increase was driven by people shifting their income into the 2015 tax year to avoid the tax increase on the rich which impacted income reported in 2016.

As you would expect, with the rich shifting their reported income into the 2015 tax year, the amount of taxable income in 2016 fell to $126 billion, causing total tax payable to fall to $27.1 billion.

It’s important to note that this means tax revenue did not actually fall — it was merely shifted into a different tax year.

Beyond this, the Fraser Institute is wrong to claim that this shift represents a permanent effect of the tax increase on the 1%. In fact, the data shows that this is not the case. Instead, the tax increase caused a one-off shift of reported income to 2015 which cannot be repeated in future years.

Instead of measuring a real change in tax income over the long-term, the Fraser Institute cherry-picked two years in which the gap between tax revenue would be unusually large. They then used this misleading data to provide a sheen of legitimacy to what is really a well-tread ideological opposition to taxes in general.

The reality, backed by Canada Revenue Agency historical data, is that tax collected from the richest 1% was higher than normal in 2015 and lower than normal in 2016. When the data becomes available, we will likely find that 2017 data shows a reversion to the average in terms of income reported by Canada’s 1%, with a slight increase in tax revenue thanks to the increase in the tax rate on this group.

We look forward to the Fraser Institute correcting their error at that time.


All data from Statistics Canada T1 Tax Data