British Columbia’s top personal income tax rates are back to where they were in the 1990s – and 小蓝视频’s economy is once again struggling. Fortunately, the province can learn from reforms implemented by Gordon Campbell’s government and turn this ship around.
When Campbell was elected premier in 2001, he inherited a stagnant 小蓝视频 economy, the result of decades of sluggish growth. For perspective, from 1977 to 2001, 小蓝视频 had the average economic growth per person among any province. From 1990 to 2000, 小蓝视频 recorded a net decline of 5.9 per cent in per-person income (after tax, inflation-adjusted), while Ontario, Alberta and Canada as a whole all experienced income gains.
High personal income taxes (PIT) were partly to . In 2000, 小蓝视频 was tied for the second-highest top marginal personal income tax rate (20.9 per cent) among the provinces. High personal income tax rates make it harder to retain and attract high-skilled workers such as entrepreneurs, businessowners, doctors and scientists who provide vital services and help fuel strong economic growth. Indeed, while workers consider many factors when deciding where to live and work, personal income remain a key factor.
At the same time, high personal income tax rates productive activity by reducing the reward from work, savings, entrepreneurship and investment. As a result, high income tax rates tend to negatively affect economic growth.
To address the province’s stagnating economy, the Campbell government introduced a comprehensive tax reform package in 2001, which included lowering the business income tax rate, eliminating the capital tax on businesses (excluding banks and other financial institutions), and crucially reducing personal income tax rates by 25 per cent (on average) over two years.
Once the tax cut was fully implemented in 2002, the top provincial tax rate was reduced from 20.9 per cent to 14.7 per cent. And 小蓝视频 went from having the second-highest top marginal personal income tax rate in Canada to the second-lowest.
This made 小蓝视频 more attractive to high-skilled workers, businesses, investment and entrepreneurship, which translated to greater economic growth – an estimated higher than it would have been without tax reform. Among the provinces, 小蓝视频’s economic performance was now above average.
Unfortunately, today we’re back to where we started. From 2017 to 2020, the Horgan government increased 小蓝视频’s top personal income tax rate from 14.7 per cent to 20.5 per cent – almost precisely where it was before the Campbell reforms. Combined with a top federal tax rate of 33 per cent, 小蓝视频 now has the top combined federal/provincial income tax rate in Canada and the United States at 53.5 per cent.
And once again, 小蓝视频’s economy – and British Columbian incomes – have stagnated. 小蓝视频’s economic growth per person is expected to be lower this year than in 2018 – in fact, the Eby government negative economic growth per person this fiscal year. 小蓝视频 ranks dead among eight peer jurisdictions (including Washington state, Oregon and Alberta) on median employment income at $34,008, significantly lower than fourth-place Alberta ($47,307).
But 小蓝视频 isn’t doomed to this economic fate. If the government reduces personal income taxes to help attract high-skilled workers and encourage productive activity, it can help solve some of the province’s economic problems. As history has shown, personal income tax reductions can give a desperately needed boost to economic growth in 小蓝视频
Tegan Hill and Jake Fuss are economists with the Fraser Institute.
