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 Canadas 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 50^th 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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