It’s been a popular phrase for Alberta’s NDP, that, if elected, the United Conservatives would bring in a “$700-million tax break for the rich.”
Premier Rachel Notley brought it up most recently during her Jan. 24 speech to the Edmonton Chamber of Commerce.
“It’s not just that Mr. Kenney’s plan involves new costs for businesses and families, along with significant cuts to hospitals and schools, here’s the other thing: it also involves pretty steep tax breaks for the top one per cent — just the top one per cent — and that’s something that they’ve been consistent on,” Notley said.
“A $700-million gift to the top one per cent — most of whom aren’t even asking for it — just doesn’t make any sense, especially when you are promising to slash support for parents, seniors and kids to pay for it.”
But how accurate is the NDP’s claim?
What’s the allegation?
Several political scientists and an economist agree the NDP is referring to the idea of bringing back a flat income tax. The NDP confirmed that’s the issue it’s targeting.
“This is referring to a policy proposal adopted by the UCP as a party — so not the leadership at the moment — to return to a flat tax that we saw prior to the introduction of a progressive income tax system in Alberta a couple of years ago,” explained Trevor Tombe, an associate professor of economics and research fellow at the school of public policy at the University of Calgary.
What are the facts?
Progressive Conservative premier Jim Prentice announced plans to get rid of the flat tax in 2015, and once Notley was elected, she eliminated it.
At a convention in May, UCP members supported a draft policy to return to the 10-per-cent flat tax. However, Kenney has not said if he would support that proposal if the UCP was elected.
“Returning to a flat tax would lower the top income tax rate in Alberta from 15 to 10 per cent,” Tombe said. “You have to be making a little over $300,000 a year for that tax rate to affect you and that is, roughly speaking, that top one per cent of tax filers in Alberta.”
“That change from a 15-per-cent top rate to a 10 would lower government revenue by about $700 million per year and affect about 30,000 tax filers.”
The UCP calls the NDP’s claim a “desperate attack.”
Matt Wolf would not say where Kenney stands on the issue of flat versus progressive income tax, stressing the UCP platform will be released during the election campaign.
So, the NDP’s numbers — the $700 million in possibly lost government revenue and the one per cent affected — are accurate, but not its claim that the UCP would definitely ditch the progressive income tax.
“It’s not new to see governments of any particular political stripe going in directions different from maybe the grassroots of the party would prefer,” Tombe said. “That’s something that we should all be watching for, not just in the UCP but all of the parties — what are the specific platform commitments that they come out with?
“There’s nothing mechanical that ties future decisions of a government to what that particular government’s party membership desires.”
WATCH BELOW (Oct. 27, 2015): Alberta will abolish its flat tax system and will replace it with progressive income tax system.
What else do I need to know?
Timing is also something to consider.
“There’s nothing in the UCP policy proposal here of returning to a flat tax that says it would happen right away,” Tombe said. “And so one option for a future government would be to consider tax changes a few years from now, after the deficit has been tackled.”
Tombe also points out the tax change policy would have a wider reach than “just the top one per cent.” Returning to a flat income tax would lower marginal tax rates for everyone with an income above $128,000.
“Returning to a flat tax is more than just changing that top rate. It also changes the other brackets – the 12 per cent, 13 and 14 per cent brackets [to the tune of about $400 million].
“So the total cost of that move is about $1.1 billion and that affects maybe seven per cent or so of tax filers,” Tombe said.
Tombe says the lost-revenue issue is more complex than simply losing $700 million from the taxing the top earners.
“There are behavioural responses as well where people may shift income across provinces into Alberta to take advantage of a lower rate, for example. So the total effect on government revenue is less than this sort of ‘mechanical headline’ result.
“But almost surely government revenue will fall by a pretty substantial amount by returning to a flat tax and that may or may not imply spending reductions but it certainly would, at the very least, imply higher deficits and more debt accumulation,” Tombe said.
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