The 50% Marginal Tax Rate

To start this article, let’s review some tax facts. Top income earners in Canada have a marginal tax rate of around 50% when paying federal and provincial taxes. In my province of Alberta, a high income earner pays a 48% marginal rate after he earns $303,000 annually. Other provinces have a higher marginal tax rate with lower thresholds.


Is it this a wise or moral economic policy?


To deal with the “wise” aspect, logic says that higher taxes will discourage high-income earners from participating fully in the economy. To counter this, let’s bring up the example of a current hockey player who just signed a $1,000,000 contract with the Calgary Flames. He will play 84 games, which means he gets a gross pay of $11,900 a game. He hits the high marginal tax rate at about 26 games. At that point, his net pay is now $6,200 a game. If he is discouraged by high taxes, he should stop playing hockey right there. But he continues on through the entire hockey season, quite content that he is still making more money in one night than most of us see in a month. The 48% marginal tax rate is not affecting his participation in the economy.


Back in the 1980s, Sweden had a doctor shortage. When the government dug a little deeper for this social change, it found quite a few doctors working only half days. The doctors were discouraged because a full day of work put them into 80% tax rate which meant the second half of the day they were almost working for free. Instead the doctors were renovating their houses, fixing their cars, and learning to cook gourmet meals. The government reduced the marginal tax rate to 60%. The doctors came back to work fulltime—and hired carpenters and mechanics and ate in fancy restaurants.


So somewhere between 50% and 80% marginal tax rates is a point where high income earners start dropping out of the economy. There is no evidence that a 50% marginal tax rate is hurting the Canadian economy.


So what about the “moral” aspect? It sounds only fair that if a working poor person is only paying 10%, so too should a high-income earner. But the two demographics differ. The working poor are stuck in crappy jobs. There is little advancement or leverage to generate more wealth. On the other side, the high-income earner gained the opportunity to develop some valuable workplace skills from a strong family background and a high quality education. It also comes from a social system that allows a strong family background to flourish and delivers a high quality education. In other words, the attributes that gave a high-income earner the opportunity to create and enjoy wealth come mostly from society, not from some kind of John-Wayne-can-do-anything-by-himself attitude. If there is a moral aspect to high marginal tax rates, high-income earners need to be taxed more because they have taken more advantages from the system.   


And here’s another moral angle. High marginal tax rates have been around for a long time. Citizens preparing their lives for a high income should know that they will be taxed at a higher marginal rate. They should see business deal between them and their society with eyes wide open. They chose to participate at level that puts them in the 50% tax rate. Why should the deal be broken because they don’t like paying taxes?  


There are good economics and moral grounds for high marginal tax rates.


George N Romey Added Oct 11, 2017 - 9:11am
Rarely will people not to a deal because of taxes. Most have loopholes anyway. If we had a more broad base economy we could tax the rich less.
Dino Manalis Added Oct 11, 2017 - 9:16am
Taxes should be kept as low as possible while financing the country's expenses, but the best way to bolster the economy is by cutting business taxes to boost growth; jobs; investments; and employee salaries.
Ari Silverstein Added Oct 11, 2017 - 11:11am
It’s neither wise nor moral to take 50% of what one earns.  Focusing on morals, I find it to be a form of theft for the government to forcefully take what we earn.  The only difference between high and low tax governments, are the degree to which they steal from the populace via the marginal tax rate.  Don't get me started on why it's not wise either.  
Leroy Added Oct 11, 2017 - 11:33am
I'm all for Canada implementing a 50% or even a 100% tax.  The ablest would move to the US and it would get the benefit.
Mike Haluska Added Oct 11, 2017 - 11:37am
Dave - financial calculations aside, what is the MORAL justification for stripping HALF of a doctor's income, considering the personal and financial sacrifice he/she made (college, med school, internship, etc.) just for the CHANCE of becoming a licensed doctor?  Does a doctor get additional police protection?  Does a doctor get special military protection?  Is the doctor consuming more government resources than say, a carpenter?
Why is PUNISHING SUCCESS such a great idea in the first place????
Mike Haluska Added Oct 11, 2017 - 11:44am
George - what planet do you live on when you claim:
"Rarely will people not to a deal because of taxes"
I see a steady migration of ordinary people and businesses moving from high taxes/high regulation Illinois to low taxes/mandatory balanced budget/low regulations Indiana every day!  A $250,000 home in Sauk Village, IL pays double or triple in property taxes that the same size home in St. John, IN pays - and they're only 10 miles apart!!!
This is happening all over the country, and the Democratic controlled states and cities are hurting big time because of it!
Leroy Added Oct 11, 2017 - 11:55am
I often wondered what would have it we implemented higher taxes on lower incomes.  The government likes to tax things it wants to discourage.  We should discourage people from being poor.  And, it makes sense.  Poorer people require more government services, so they should be taxed at a higher rate.  Rich people don't shouldn't need the government so much, so it should pay minimum taxes.
Tubularsock Added Oct 11, 2017 - 11:58am
Wow. Morality and taxation.
Now, there is a great combination.
Well, Tubularsock sees a clear way to reduce taxation in the U.S. and still maintain the moral high ground and saving over 60% of the governments expenditure a year.
Eliminate the military. Now there is morality for ya’!
Dave Volek Added Oct 11, 2017 - 4:44pm
I believe about 1% of Canadian earn $200,000 or more. Those in business or professional corporations have accounting techniques to reduce their taxes. But those salaried high income earners can't move their income around to get tax reductions.
If taxes are cut, the owners will most likely keep the money for themselves. We should not assume they will be generous.
Yep, it's not much point you and I discussing this issue again. But when I cobbled those two examples for your thread, I had to get some more mileage out of them.
Leroy #1
A 100% tax is silly! People would stop working altogether.
Canada is already at 50% marginal tax rate. I don't see successful people moving down the the States in droves. And if they are, I say it's a good thing to get these people without a social conscience out of Canada. Like waitresses and truck drivers, the business class  can be replaced. 
Maybe things are different in the US, but tuition only covers 10% of a cost of the university/college education. The rest is covered by provincial and federal governments. So when a doctor gets his/her medical license, society has already invested a lot in this individual.
As for additional police protection, google the "Montreal Police strike of 1969". Within minutes of the union walking off the job, the ugly side of society started running the city. So yes, police cruiser are not parked outside rich people enclaves giving impression that no police protection is happening. But take the cruisers off the streets, the bad people will come to rich people's houses because there is more to steal.
Leroy #2
If we taxed the working poor at 50%, they would quit working and go on welfare. If rich people want to go on welfare, they too should be allowed to do it. It seems the US has very generous social assistance programs--according to WB contributors. It's a free country: choose between going on welfare and pay very little tax and earning a high income and pay 50% (or whatever you Americans pay) as marginal rate.
John G.
You make no sense.
Dave Volek Added Oct 11, 2017 - 5:14pm
Your second comment is interesting. The city of Lloydminster straddles the Alberta/Saskatchewan border. Business tend to locate on the Alberta side for its lower corporate tax rate. So the Alberta side (18,000 residents) is developed a little better than the Saskatchewan side (11,000). This city is a good example of tax rates can influence economic activity. But it should be noted that most Sask residents are not looking for any excuse to move the Alberta side.
We could argue that the lower provincial corporate rates are the reason for this difference. So we could then argue that to make the Saskatchewan more competitive, it should lower its rates to Alberta. But if Sask. lowered its corporate rates for Lloydminister, it would (to be fair) have to reduce its rates across the province. It would get less revenue from businesses in other cities. 
These are the kinds of decisions left to politicians and economists to figure how to get the most out of the economy and tax revenue. If we left it to libertarian ideologues, there would be a race to 0% taxes.
And I believe that current economics puts Alberta at a much higher deficit than Saskatchewan. So maybe the Sask government is being more responsible by keeping its taxes a little higher. 
Your Sauk Village vs. St John is a good example. Politicians decide on the balance they want for their community (services & responsible debt vs lower taxes). Residents decide whether they want to move. New residents weigh the pros and cons of both communities and make a choice in one of the communities. There is no ideology that proves one side is better than the other.
Saint George Added Oct 12, 2017 - 3:46am
It makes perfect sense if you understand the monetary system.
And you're claiming that you understand the monetary system?
Excuse me, but . . .
You're just a zombunist troll! You don't understand anything — not even basic arithmetic or accounting identities.
Leroy Added Oct 12, 2017 - 6:57am
"If taxes are cut, the owners will most likely keep the money for themselves. We should not assume they will be generous."
Most would, Dave, but what do you suppose they do with that money they keep for themselves?  Do you suppose that hide it under the mattress or bury their money as pots of gold?  I'd wager that most either spend it on things they enjoy or re-invest the money.  Both tend the have the side effect of employing people.  Doesn't it make sense that if the government took half, there would be less luxury items purchased and less investment made and consequently less employment?
"If we taxed the working poor at 50%, they would quit working and go on welfare. If rich people want to go on welfare, they too should be allowed to do it. It seems the US has very generous social assistance programs--according to WB contributors. It's a free country: choose between going on welfare and pay very little tax and earning a high income and pay 50% (or whatever you Americans pay) as marginal rate."
So, ultimately, don't we get back to your idea of a UBI?  Rather than a direct payment, they get welfare by a different means.  If they want a minimal existence, they get it for "free."  If they have any self-esteem, the more they work, the more they are rewarded.  You can't squeeze work out of a deadbeat.
Bill Kamps Added Oct 12, 2017 - 11:15am
Dave, the example of the hockey player is a pretty poor example of how people deal with a 50% marginal tax rate.  While it is easy for a doctor to decide not to work afternoons, the hockey  player cannot take half the season off, he signed that million dollar contract with the  stipulation he would play all the games, he isnt getting paid by the game as an independent contractor.
Suppose instead a computer consultant, or an attorney got to the 50% tax rate after working 8 months, do you think they would bill as many hours per month in the final 4 months as in the first 8 months? I doubt it.
As for how tax rates and deals are done, to a point you are correct.  However, tax rates and the deal with the government change all the time. That makes it particularly difficult to plan a business, since the rules are always changing. 
George, companies and people always look at tax consequences before doing a deal.  Do they often stop the deal, probably no, but they may cause the factory to be built in Ireland, instead of the US because of the  tax situation.  Apple is building a computer center in Ireland with their overseas profits, because the tax consequences of bringing those profits back to the US  are too expensive.
Dave Volek Added Oct 12, 2017 - 11:29am
Great comments! To address your first comment:
In a closed economic system, a dollar put into a savings account or spent on a hamburger or invested to upgrade a business eventually means other people get to use that dollar in various ways. Money never really disappears.
So if we give a rich person a tax break (from current taxes), we agree that he would most likely spend it on himself. So goes out to a fancy restaurant (more often than usual) and imbibes in his favorite steak dinner. In doing so, he is indirectly employing a waiter, helping to keep this citizen employed and self reliant. This is all good.
However, if the rich citizen does not get the tax break, the government 'indirectly" decides to keep a teacher's aide employed. This person may be instrumental in turning around one or two young people a year to lead a more functional life as an adult. This is also good for society.
So do we need more waiters or do we need more teacher aides? Both are employed and not being a burden on society. Both  spend their earnings elsewhere in the economy. But the aide provides more social benefits to create a better society for the future.
As I see it,  the choices made by rich people to spend their surplus cash really don't move the world into a better place--even though money is stilling moving through the economy. But governments can direct resources to elevate society.
To address your second comment:
Yes, UBI and tax rates need to be considered together for long-term social planning. I'm not sure government is able to juggle two balls like this at the same time (giving me another excuse to flaunt my TDG).
When developing these social programs (and marginal tax rates is one of many), the economy needs to be be monitored. In my article, I stated that there is very little evidence that a marginal rate of 50% affects the behavior of high income earners. They continue to work at their current pace and drive, and society still gets the benefits of their talents. But the article also said that if the marginal rates go up too high, the high income earners drop out--like the Swedish doctors of the 1980s. So there is a limit how high these marginal rates can go. But 50% does not produce ill effects on the economy--unless one believes eating more steak dinners to employ waiters is better than keeping teacher's aides on the payroll.
There are people who should not be in the work force. If we force them to be in the work force, their employers will suffer as they waste money trying to train these people. It is cheaper for society  to give "deadbeats" a subsistence income than to force them to find a job.
Bill Kamps Added Oct 12, 2017 - 11:41am
Dave, people's feelings about tax rates vary a lot depending on how confident the people are with the government spending priorities.  In Canada and in some other places like Norway, relatively high marginal rates are tolerated because there is a consensus on how the money should be spent, and the government generally is following the consensus.  This is often easier with smaller populations that are more homogeneous.  
In the US there is a great deal of mistrust for how the government spends the  money.  Partly this is because our form of government makes it difficult to efficiently plan spending.  It is so easy to stop a bill from becoming law, that lots of horse trading  has to be done to get a law passed, and in the end the funded project becomes a caricature of its original intention. We also have a large and very non-homogeneous population and society.  Living in NYC is very different from Mississippi, as just one example.  Houston Texas has a population greater than Norway, and California a larger population than Canada.
Dave Volek Added Oct 12, 2017 - 12:49pm
There probably is a high degree of truth to what you are saying.
I would say that about half of Canada's high income earners accept their 50% marginal tax with a degree of social conscience. The other half believe they are being taken advantage of and cannot see how a strong civil society depends on taxes.
And, to be truthful, most of the 90% of us not in these high brackets don't mind seeing the high-income earners being stuck with a larger portion of the bill. But I should say that 99 people earning $50,000 a year still pay a lot more tax than 1 person earning $200,000 a year. 
I can't recall if I've flaunted my book to you yet. If not, you going to get the message again. From your last post, you are describing a broken down system of government. It is time for a new system.
The old system can't be fixed!
Bill Kamps Added Oct 12, 2017 - 12:59pm
Dave, I will check it out.
Our government was designed to be minimalist.  It was created to make passing laws difficult so as to make it difficult for a king or dictator to take control.  It was intended to keep the size of government small.  People are usually amazed when they learn there  was not income tax until about 1910. 
The government was not designed to micromanage big organizations, and to approve spending for each step in building F-35 fighter jets.  You cant horse trade every feature of a plane, or you wide up with something that literally wont fly.
Unfortunately, politicians figured out how to grow the government without  simultaneously  figuring how to make it efficient. 
While you may or may not have figured out a better form of government, getting there will likely not be possible for the same reasons that the government is inefficient.
Dave Volek Added Oct 12, 2017 - 2:51pm
I think all western democracies were designed to be minimalist. But our societies have become more complex since 1800, and it's strange why we cling to these old tools of governance.
In my mind, we need to pass more legislation--but we also need to repeal ineffective legislation. As it stands right now, when legislation is passed and turns out it needs some fine tuning or even a complete discard, it takes 20 years of political pressure to make the change.
Changing the system from within won't work. Rather a new system will have to built from scratch, and it will have to earn the respect and trust of the general citizenry to make the transfer from western democracy to the TDG. All this is in Chapter 6.
The TDG will never start by getting a 50%+ approval rating. It only needs 1% or 2% of the population to start working on it and learning a few lessons along the way. These people will show how it can be done.
Dave Volek Added Oct 12, 2017 - 4:28pm
John G.
I first encountered the Green Book in a documentary called "Democracy", created by Patrick Watson of the Canadian Broadcasting Corporations. Mr Watson gave about 40 minutes to the dictator and his book and how it applied to his country (circa 1980). 
I have not read the book.  If we judge a man by his actions rather than his words, I cannot see how Mr. Gadaffi should be leading us on how to change the world.
But to appease you, I did look at a few reviews. Here is one from the New York Times:
Most analyses of the Green Book emphasize Qaddafi’s many digressions and penchant for stating the obvious, like his proclamation that “woman is a female and man is a male.” Because it is muddled, the book is often dismissed as simply a hodgepodge of aphorisms, the ramblings of a mad dictator. And in fact, the slim 21,000-word treatise does not present a coherent worldview. But the Green Book does have its own peculiar logic: a mixture of utopian socialism, Arab nationalism and the Third World revolutionary ideology that was in vogue at the time it was written, along with a streak of Bedouin supremacism. And its tone and style echo a long tradition in classical Arabic literature: that of the ruler or his faithful scribe expounding on matters of philosophy, politics, art, culture or whatever strikes his fancy.
All other reviews were negative. From what I glean from these reviews and my recollection of the documentary, the TDG is nothing like the Green Book. I have no desire to wade through the 21,000 word document.
But you are much smarter than me. If you say I stole Gadaffi's ideas, you must be right. 
George N Romey Added Oct 12, 2017 - 4:34pm
Big earners need government less.  Your kids go to private school, you have private security,  you have an association that takes care of easements, etc. So how to fund government particularly with a shrinking tax base and more demand on services? 
Saint George Added Oct 12, 2017 - 6:17pm
it takes 20 years of political pressure to make the change.
So you would like less popular democracy (which is always slow-moving) and more centralized authority (which can act quickly), is that correct? You'd prefer government by a good, kind, benevolent Strong-Man, like a Chavez, Maduro, or Castro . . . but without the Spanish accent?
Utpal Patel Added Oct 13, 2017 - 7:14am
Excellent point Ari.  If morals were the only thing to consider in setting the marginal tax rate, we’d have a flat tax or no tax.
Dave Volek Added Oct 13, 2017 - 12:00pm
Big earners may believe they need government less, but they need it probably more than average earners.
Without a police force--and associated legal apparatuses--to keep the bad people somewhat in line, the bad people will go to the rich neighborhoods and loot like hell. If the rich people have to hire their own security force to handle all this, there goes their profits.
Prisons are really good for keeping the really bad people away from rich peoples' neighborhoods. Those cost money as well, which come from taxes.
Rich people need an educated workforce, and where does the money come from to educate that workforce? Try taxes!
Rich people benefit greatly from current tax structures.
Dave Volek Added Oct 13, 2017 - 12:09pm
John G
My recollection of that documentary where Mr. Watson interviewed Mr Gaddafi and his Green Book was that Mr. Gaddafi supposedly opened up the process for citizens to speak their mind, but in a very closed setting. And they were not allowed to unite in their criticism of government. And Mr Gaddafi was still the supreme leader and could not be removed from office.
I don't see a lot of similarities between the Green Book and the TDG. But if you insist that I stole ideas from the Green Book, you must be right!
I posted one of about five reviews of the Green Book I came across. Not one mentioned anything good coming from this book. Maybe there is some prejudice happening here, but Mr Gaddafi's actions while being supreme leader speak louder than words.
In the meantime, I have a whole bunch of books I want to read (including taking another course on macroeconomics). I see spending time with the Green Book will be a fruitless endeavor.
Doug Plumb Added Oct 13, 2017 - 5:13pm
@Ari re " I find it to be a form of theft for the government to forcefully take what we earn.  "
It is a form of theft. Only the Legal fiction can be subject to a monetary system such as ours. It is a huge violation of the basic common law principle and am convinced can be won in the courts if proper jurisdiction is obtained.
Common law forms the basis for Western Jurisprudence and the phrase means "common to all men" It is instrumentalized through practise and often believed to be "that which is commonly done".
  We lost the requirement of the Crown (Queen/Coronation oath) in Canada to be the guardian of the common law and final arbitrator of legislation. Canada's law will slowly change from common to all men to that which is commonly done to most men.
  We still have it under international law, but its hidden by the Penumbra doctrine in USA and Justinian principles through laws of England in Canada. (Rome Emperor Justin is said to have posted the laws high up on a post where almost no one could read them)
  Its a fundamental violation of the principle to keep public and private separate, - that is do not force a phoney debt on a living man. Only corporations and volunteers are subject to the income tax.
 I'm suing my bank for letting those assholes from CRA dip into my private account to pay for their public debt. The problem with getting out of paying income tax is not the lawfullness, but the shovelling of shit to get that done. But the banks just stepped into a huge pile of shit and tracked it all through my place, unknowingly.
  I'll play a long game, read metaphysics of procedure and old common law books and perfect a claim independent of statutory law and win. Bastards.
Doug Plumb Added Oct 13, 2017 - 5:21pm
We pay income tax as interest to international bankers to service the debt. The politicians can borrow as much as they want. The banks have no obligation to any of us, except to let the politicians borrow as much as they want. It doesn't pay for the roads...
  The income tax itself is fundamentally wrong on so many levels.
Doug Plumb Added Oct 13, 2017 - 5:27pm
No more bankster wars if income tax dies. Notice that the wars of late have not been declared by the legislators, they have been "police actions" to install central banks owned by the "Irish" in every country, extract an income tax and build the NWO with it.
  Everything rotten in the world, politics, is ultimately funded by the income tax.
  I had enough when I got a letter from my banks shutting me down for some frivolous and vexatious claim from those income tax bastards. I don't owe them anything, been paying without filing for my seven years just this summer. They don't like that - I'm no longer obligated to pay them income tax.
  So if I sound like a lawyer, please excuse me, but I am trying to learn their thinking and ways and so using their words helps. I am convinced and I have been for a long time that learning the law is our key to tearing the NWO down.
Doug Plumb Added Oct 13, 2017 - 5:29pm
@leroy re "I often wondered what would have it we implemented higher taxes on lower incomes.  The government likes to tax things it wants to discourage.  We should discourage people from being poor. "
lol. You should be the next George Carlin.
Doug Plumb Added Oct 13, 2017 - 5:33pm
re "50% marginal tax rate" What does this mean ? Marginal means the derivative of tax wrt income here.
Zachery d Taylor Added Oct 14, 2017 - 11:39am
The tax rate isn't the most important thing and it seems to be based on the false assumption that wages are reasonably fair, which isn't close to the truth. 
The economic system is controlled by a small fraction of the public and they rig wages heavily in their favor; so unless this is fixed then the second best solution is a progressive tax system that charges the wealthy, who often don't deserve all the money they get from rigging the system, more.
But this wouldn't be as effective as providing full disclosure so people understand how the economy works.
Advertisers get big money because they commit fraud so do public relations people or political pundits, lawyers, union busters, lawyers and a large number of other scam artists, at the expense of the working class that does work that actually benefits society. 
The economic system needs to be totally redone!
Stephen Hunter Added Oct 15, 2017 - 10:35am
Great recap Dave, and as a Canadian you have taught me a few of the basic facts, which I sort of knew but not this precisely. 
From a moral perspective, I agree with our tax structure and I am willing to pay a higher %, as I must help those not as fortunate as I am. (not in the 200K + category but am grateful to be in the next level down)
Dave Volek Added Oct 17, 2017 - 11:26am
I too look forward to my book selling so well that it puts me in the 48% tax bracket. 
I think many high-income earners know how fortunate they are. They may complain paying taxes and maybe play a few accounting games to reduce their tax bill a little. But they know their bread is buttered by being in a strong civil society.
More than a few high income earners don't get it. They somehow think they are more valuable than the rest of us. If we extend their logic, they should not pay any taxes because they are so good at what they do.
I was kind of surprised at the flak the Liberals are getting from their recent tax reforms. The complainers like to paint themselves as ordinary Canadians trying to earn a living. But if they are in a position where these reforms could "hurt" them, they are probably pulling in at least $250,000 a year.
But I do have wonder about the motives of the government though. Going after these people will not find a lot of extra tax revenue. They should be going after the offshore companies of high income earners.
Doug Plumb Added Oct 17, 2017 - 4:21pm
One could argue that the tax system is set to to (1) Generate confusion which permits more transgressions on peoples rights and (2) To hide who is paying what for taxes in truth. It isn't your tax write but also your write offs that provide your true taxation. Everyone has a right to tax privacy. Hmmmm. Doesn't that make you wonder? There is always an ostensible reason and the real reason. Public privacy is what we lose to maintain freedom. Also- no secret societies - no public privacy. Kant said it plain. Plato said it plain.
Dave Volek Added Oct 17, 2017 - 8:17pm
Good point Doug.
As a less-than-rich person, it would not bother me if my current tax returns are somehow out there for the public to see.
And I'm pretty sure I'll be honest with paying taxes if my book sales reach $200,000. But I'm not sure I want others to know my income at that higher level.
I have been in business twice and lost both times. But according to Canadian tax laws, I am able to write those business losses against my taxable income. So I've had a few years where I didn't pay any taxes. I could see an enemy taking a look at that tax return and claiming I got an unfair advantage and that I'm a tax cheat. Once that message got out, it would be hard to change it in the court of public opinion. Maybe that's a good reason to keep these affairs private.
Saint George Added Oct 18, 2017 - 10:45pm
Misleading gibberish from SkiddlesMcGeeMark and his Modern Monetary Theory cult-of-the-printing-press.
Safe to ignore.