'Stealth Tax Rates': Effective Versus Statutory Personal Marginal Tax Rates

Posted: 18 Apr 1999

See all articles by Alan Macnaughton

Alan Macnaughton

University of Waterloo - School of Accounting and Finance

Thomas A. Matthews

affiliation not provided to SSRN

Jeffrey Pittman

Memorial University of Newfoundland (MNU) - Faculty of Business Administration

Abstract

This article is a comparison of statutory and effective marginal tax rates in Canada. It is similar to a recent study by the Joint Committee on Taxation in the United States, except that both the personal income tax and social security programs are considered. The data source is the Social Policy Simulation Database and Model, which is a Statistics Canada database of tax information on 200,000 individuals.

Nineteen separate sources of differences between effective and statutory rates are ranked in terms of their impact on effective marginal tax rates in Canada, with the benefit reduction of the guaranteed income supplement for seniors heading the list. It is found that 16.6 million Canadians, or 56 percent of the population, experience some difference between their effective and statutory marginal tax rates. More than one-fifth of the population has at least a 10-percentage-point difference. These Canadian figures are higher than those previously calculated for individual taxpayers in the United States. High effective tax rates are concentrated in the 17-percent federal statutory rate bracket; more taxpayers with effective rates above 45 percent come from this bracket than from the supposedly "top" bracket of 31.32 percent. Almost 1 million Canadians, two-thirds of whom are seniors, have an effective marginal tax rate of 60 percent or more.

JEL Classification: H24, H55

Suggested Citation

Macnaughton, Alan and Matthews, Thomas A. and Pittman, Jeffrey A., 'Stealth Tax Rates': Effective Versus Statutory Personal Marginal Tax Rates. Canadian Tax Journal, Vol. 46, No. 5, 1998. Available at SSRN: https://ssrn.com/abstract=157688

Alan Macnaughton (Contact Author)

University of Waterloo - School of Accounting and Finance ( email )

200 University Avenue West
Waterloo, Ontario N2L 3G1 N2L 3G1
Canada
613-996-8267 (Phone)
613-943-5597 (Fax)

Thomas A. Matthews

affiliation not provided to SSRN

Jeffrey A. Pittman

Memorial University of Newfoundland (MNU) - Faculty of Business Administration ( email )

St. John's, Newfoundland A1B 3X5
Canada
709-737-3100 (Phone)
709-737-7680 (Fax)

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