Chapter Four: BC’s 2001 incentive-based tax cuts helped reverse economic decline

http://www.fraserinstitute.org/commerce.web/newsrelease.aspx?nID=5163

According to recent studies, there is an evident relation between tax-rates and the countries GDP per person. This article focuses on British Columbia where it shows that the tax rates have decreased over the years. In 2001, the corporate income tax rates decreased from 16.5% to 13.5%, then in 2005 it went to 12%. Also, there was a 25% reduction in personal income tax rates in 2001. Doing this lead to increased economic activity, which allowed the growth of our economy to benefit our province. Provinces that reduced their corporate income tax rates by 10% resulted in a GDP increase of 1-2% per person. Provinces that lowered top marginal personal income tax by 10% resulted in a 1% increase of GDP per person. These values were over a period of 1977-2006.

In Chapter 4, the income taxes provide the most tax revenue for our government. Using the information from the book, the 2002 tax revenues come from 46.5% from personal income tax. Corporate income tax accounted for 12.9% of the tax revenue as well. This shows that over half the tax revenue comes from income tax. It seems unnecessary to have such a large percentage of income directly taken from the people of the country. The tax seems to be too much of a burden on people and is probably the reason why lowering the tax rates will increase economic growth.

These results are caused by provincial decrease in taxes, but what if the federal government lowered tax rates as well? There would be a larger increase of economic activity and our country as a whole will increase in productivity. However, we must remember why we have taxes in the first place. We must not lower the taxes too much, but if we can afford to lower it, it is proven to increase economic growth. Right now, I believe there are a lot of unnecessary taxes in our country. For example, the personal income tax is around 25%, which is extreme and it gets larger with increased income. It doesn’t seem like the government in Canada currently spends the tax revenue to its full potential. Often I hear they spend a couple billion on random things that aren’t necessities whereas they can lower tax rates and increase economic growth instead.