Marginal effective tax rates lowest in B.C.: Study

B.C. typically exposed to the lowest METRs in the Western provinces
||Last Updated: 08/26/2011

British Columbia fairs better than the rest of the West when it comes to the impact of taxes and the withdrawal of benefits and credits on personal incomes, according to a C.D. Howe Institute report.

The marginal effective tax rate (METR) on personal income measures the impact, on take-home pay, of federal and provincial income taxes combined with the impact of reductions and clawbacks of income-tested tax credits and benefits, according to the study.

Such income-tested credits and benefits mostly target financial support to low- and middle-income families with children, or to low-income seniors. As family incomes rise past prescribed thresholds, clawbacks and reductions begin, raising the METR on each dollar of incremental income, the study said.

The study found the tax impact on each dollar of extra income for families with children in Western provinces is lowest in British Columbia and Alberta, followed by Saskatchewan and Manitoba.

"METRs matter for families who want to pocket more income from their extra work effort, and for policymakers who want to ensure low-income families benefit from taking paid work and moving up the income scale,” said authors of the study Finn Poschmann, vice-president of research and Alexandre Laurin, associate director of research at the C.D. Howe Institute.

"High METRs also create incentives to avoid taxes."

The report also found that British Columbians enjoy the lowest average METR in Canada, with Alberta enjoying the second-lowest METRs for families with children, at 34 per cent.

But Alberta's average METRs for families with seniors, at 41 per cent, is higher than in the rest of Canada.

For the most part, the Western provinces appear to have done a better job than other provinces at keeping down METRs for working families. This is especially true for British Columbia, which stands out as the province where taxpayers, whether working or retired, are typically exposed to the lowest METRs, according to the study.

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