This paper provides a comprehensive analysis of the progressivity of the Canadian personal income tax, historically, theoretically, and empirically. I begin with a review of the recommendations of the 1966 Royal Commission on Taxation. I then discuss the recent refocusing of the academic literature on optimal income taxation in the direction of policy-relevant considerations. Next, I turn to empirical analysis of the Canadian personal income tax system. I begin the empirics with some historic context on how progressivity has evolved over the past fifty years in Canada, followed by a thorough examination of the progressivity within the current personal income tax. The final section of the paper provides some policy options that can shift the income tax in a more progressive direction through either tax cuts in the middle or tax increases at the top. I show the impact of each on the distribution of tax burdens, and provide an approximate costing to give a sense of proportions.
I have three major findings. First, a progressive income tax finds substantial support in recent theoretic advances, and the modern optimal tax framework is found to provide a much better base for analysis of progressivity than the 1966 Royal Commission on Taxation. Second, the evolution of the Canadian personal income tax over the past fifty years reveals the complete elimination of progressivity within the top one percent of taxfilers in the 1980s, only reversed in the recent 2016 tax changes. The other dominant long-run trend is a broad and large increase in tax-based transfers to the bottom quartile of taxfilers. Finally, I study several possible reforms that could increase the progressivity of the tax system through the middle and top of the income distribution.Versions: