Taxing Ontarioâ€™s Richest
Ontarioâ€™s NDP was out today with a Robin Hood proposal to collect more provincial tax from personal incomes in excess of half a million dollars. The approximately $570 million of additional revenue would increase the Ontario Disability Support Plan, protect childcare spaces and remove provincial HST from home heating.
UBC economist Kevin Milligan has been tweeting his estimate that the NDPâ€™s proposal would collect only $290 million given no behavioural response. He is correct that â€œthere is no public source of data that allows us to know exactly how much income is in an Ontario $500K tax bracket.â€
As New Democrats tweeted, Informetrica computed the $570-million estimate using Statistics Canadaâ€™s Social Policy Simulation Database and Model (Version 18.1). Whether or not oneÂ accepts that calculation, Dr. Milliganâ€™s estimate is clearly too low.
His starting point is the Canada Revenue Agencyâ€™s (CRA) income statistics for 2009. While using the most recent available data is reasonable, itâ€™s worth noting that top incomes were temporarily depressed in 2009 by the financial crisis, which cut executive bonuses, capital gains, etc.
Dr. Milligan states, â€œThe CRA statistics do not break out the top 250K by province,â€ and proceeds to estimate that Ontarians making more than $250,000 had taxable income of $35 billion. In fact, CRAâ€™s website does provide a provincial breakdown, which indicates that this figure was $42 billion. But Dr. Milligan uses the smaller figure as his point of departure to (under)estimate Ontarioâ€™sÂ taxableÂ income above $500,000.
He interprets theÂ proposed two percentage points of additional tax as increasing the top combined federal-provincialÂ rate from 46.41% to 48.41%. In fact, the NDP proposal is to raise the provincial rate from 11.16% to 13.16% for income above $500,000.
The existing 56% Ontario surtax would amplify this increase. In other words, the top combinedÂ rate would go from 11.16%*1.56+29%=46.41% to 13.16%*1.56+29%=49.53%. So, Dr. Milligan understates both the tax rate and the tax base.
There may be a legitimate debate about whether, and how much, the super-rich might respond to the proposed tax change. But any predicted revenue losses from behavioural adjustments should be subtracted from a reasonable static estimate like $570 million, rather than from a low-ball estimate like $290 million.
UPDATE (April 3): Dr. Milligan now seems to have boosted his estimate.