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ECON 2D03 McMaster Tax System and Tax Policy Taxation of High Incomes Report

ECON 2D03 McMaster Tax System and Tax Policy Taxation of High Incomes Report

Question Description

  • 1)Background:
  • 2)Policy evaluation.

In this section, draw on Statistics Canada’s public tables to cover the following:

Who are the top 1%?

  • Top income cut-off, average income, share of income from labour & how much tax they pay
  • Sex and age
  • Province/Location

Compared to the bottom 50th percentile of tax filers, how has the income share and effective tax rate of the top 1% evolved over the data period?

By province, how has the income share and effective tax rate of the province-specific top 1% evolved over time?

Consider the following proposal to increase the top marginal tax rate on the top (province-specific) 1%:

Cover the following issues (by province) with this proposal (Assume a constant ETI of 0.664):

  • What is the net revenue effect (by province) of this proposal? Comment on any noticeable provincial differences.
    • How much of the mechanical revenue gain disappears because of a behavioural effect?
    • What are the revenue and mechanical effects per tax filer?
    • Why is the elasticity of taxable income important?
  • What might explain these differences
    • Think about skewness & revenue gain share of the mechanical effect
  • What is the marginal cost of public funds?
  • Explain and calculate the optimal province-specific top 1% marginal tax rate. How far off is it from the fictitious +5 marginal tax rate?
  • Assuming no income shifting, what is the size of the vertical fiscal externality?
  • What are the progressivity implications of this proposal?

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