IM-Laurin and Dahir_2024_0923.pub

Howe Institute Shadow Budget last spring reflected these insights by suggesting a simple change in the federal tax mix: a 2 percentage points increase in the GST rate accompanied by a 2 percentage points reduction in the federal corporate income tax (CIT) rate, and a reduction of the tax rate for the second federal personal income tax (PIT) bracket, ranging from $55,867 to $111,733, from 20.5 perc. [...] We use an elasticity of taxable income of -0.33, inspired from this study, to model the impact of that cut on the taxable income base. [...] We simulate these positive impacts by using the Parliamentary Budget Officer’s estimate of the elasticity of taxable income that it derived by analyzing taxpayer response to the 2016 middle-income tax cut. [...] Furthermore, we model the effects of the corporate tax reduction on the eligible dividend tax credit to preserve tax integration. [...] However, some couples in the third income quartile might not gain from the personal tax reduction because of the split of family income between spouses.