Ignore myths about Alberta's former tax system
Mark Milke Calgary Herald, May 12, 2018, A16
Alberta's cancelled single tax rate is in the news again after the United Conservative Party passed a policy resolution wanting it back. That was followed by Twitter wars, interviews and commentaries about that tax, much of it uninformed or making obvious points.
I know something about the single rate tax system. I wrote about it in a 1998 submission to the Alberta Tax Review Committee, which recommended it be adopted, which it was in 2001.
I favour its return one day, but when spending is controlled and the budget is balanced.
Class warfare warriors have long mischaracterized Alberta's single rate tax, so let's clear up some misconceptions. Let's start with why it is called a single tax and not a flat tax. Because a true flat tax system would mean that no basic exemption exists - that everyone pays the same proportion of tax relative to income.
That would be a bad idea. But that was never Alberta's tax system. It is also why the political and media myth that the single tax was not progressive is nonsense.
In 2014, the last year the single rate system was in effect, Alberta's basic provincial personal exemption was $17,787. Income earners below that paid nothing in provincial income tax.
As for everyone else, at $25,000 in income, 2.9 per cent went to provincial income tax. At $50,000, the rate was 6.4 per cent. A $100,000 income was taxed 8.2 per cent. The single tax system was progressive.
Next up, the silly notion that the single rate tax was a giveaway to the wealthy. Note the language. It assumes money belongs to government and not those who earn it. In that view, any tax relief is a gift. That inverts a more sensible view from citizens to politicians: We will pay reasonable and justifiable taxes, but don't assume our earnings are your property.
A relevant fact: Higher- and middle-income Albertans pay most of the income tax, not those with lower incomes. That is why the former and not the latter would gain in any tax relief scenario.
For example, using tax data from 2014, those earning under $50,000 counted for 57.3 per cent of all tax filers and paid just 7.6 per cent of all provincial income tax.
Of note, almost 1.8 million Albertans were in that under $50,000 group in 2014, but nearly half (845,690 Albertans) quite properly paid nothing in tax due to low incomes. (Another 8,290 at higher levels also did not pay provincial income tax for various reasons, such as maximizing previously unused RRSP deductions.)
Those who earned between $50,000 and $100,000 counted for 27 per cent of all tax filers and paid 30.6 per cent of all provincial income tax.
Albertans whose incomes were more than $100,000 accounted for 15.7 per cent of Alberta's tax filers; they paid 61.8 per cent of all provincial income tax.
Point: If one's argument is that the wealthy should pay a hefty share of Alberta's income tax burden, the $100,000-plus crowd in Alberta already did (a proportion higher both of tax filers and of total taxes paid than in any other province).
Thus, any substantive tax relief will naturally benefit that group.
Here's the summary: Even when the single rate tax was in effect, Alberta's over-$50,000 tax filers already paid 92.4 per cent of all provincial income tax. And even for those who earned less than $50,000, more than half - more than 920,000 Albertans - paid all the income tax collected from that group.
When someone claims that a single tax is a giveaway to higher incomes, the rhetoric has it backwards: The gift is actually from more than 2.2 million Albertans at all income levels in 2014, to the more than 850,000 Albertans who quite properly, mostly due to low incomes, paid nothing for the cost of government.
Mark Milke is author of the 2017 study from the Canadian Taxpayers Federation, Who Pays Income Tax?