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Still progressive and family-friendly: Evaluating Québec's income tax policy

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University of Sherbrooke economist and fiscal specialist Luc Godbout with Suzie St-Cerny and Michaël Robert-Angers has just published a timely research paper evaluating the net fiscal impact on households of Québec's income tax system. Timely because, as discussed here by Armine Yalnizyan, recent data from stats can show that though income inequality has risen globally during the last recession, it has risen less in Québec then in most other provinces. Québec's income tax system certainly has something to do with this. Godbout et al. have compared the net fiscal impact of Québec's income tax system with G7 countries using data and methodology from the OECD. In the case of Canada, they used Ontario as a benchmark.

A number of interesting findings for progressives are:

1. Québec continues to rely more than other jurisdictions on income tax as a policy tool to fund public expenses and to redistribute wealth. The weight of income taxes to GDP is higher in Québec then in the other G7 countries, 12.8 per cent for Québec compared to the average 9 per cent for the G7 and 11.4 per cent for Canada.

2. But when one factors in the net fiscal impact of the province's tax system on households, adding in various other taxes and payments (except sales tax) and subtracting various income transfers from the state to households, then the weight of our income tax system is actually below the G7 average, for households at all income level brackets (the study examined the case of 67 per cent, 100 per cent, 167 per cent and 200 per cent of the average income). In Godbout et al.'s words, we have a "competitive" fiscal system.

3. Godbout et al. also compared the progressiveness of Québec's tax system to other G7 jurisdictions and found that among G7 nations, Québec has the most progressive income tax system in almost all scenarios. The global progressiveness measured as the spread between the taxes paid by households at 67 per cent of average income and those at 300 per cent of average income varies between 15 and 55 per cent depending on household composition.

4. Godbout et al. also compared progressiveness in terms of household type and found that Québec's income tax system favors families and single parent households more than in other G7 countries. When income level progressiveness and family progressiveness are combined it is found that Québec's tax system most actively supports the more vulnerable families, single-parent low-income earners, favours single-parent over two-parent households and favours families over couples and singles without children. Only families with children at upper income levels are not favoured by the progressiveness of the tax system.

* * *

It appears upon reading the report that Québec's highly progressive income tax system attains the dual policy objectives of supporting families with children, of helping more vulnerable single-parent families (mostly women), all the while redistributing income. It is happily surprising to see that the net impact of this income tax policy is comparable to the mean impact of G7 countries whose tax systems are either not as supportive of families or as progressive in terms of income redistribution.

We might be the "most taxed workforce in North America, as right-wing pundits and their think-tank economists repeat ad nauseum, but when compared to G7 nations globally, our tax system: " realizes the feat of remaining competitive by staying under the average of G7 nations .... all the while offering the strongest progressiveness as incomes rise combined with a solid recognition of family situations." (my translation).

This article was first posted on The Progressive Economics Forum.

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