Save the economy - get rid of the flat tax

In my post yesterday, I examined provincial personal income taxes for a variety of income earners. I realise now that I wasn't clear on my main thesis.

The primary point I wanted to make is that flat tax systems extraordinarily benefit high income earners - and do so at the expense of middle class workers.

My analysis showed that an Albertan earning $40,000 pays 40% more in income tax than her counterpart in British Columbia. At the same time, the Albertan making $200,000 pays 18% less than a similar west-coaster.

But let's also keep in mind two important considerations.

Dollar for dollar, that high income earner is saving $4,000 out of his $200,000 while the low income earner is paying an extra $700 out of $40,000. Who do you think notices that difference more?

Secondly, my calculations do not include deductions. How much tax do you think that $40,000 earner is deducting because of RRSPs, political contributions or investment dividends? Now, how much do you think that $200,000 earner is deducting?

But, more importantly let's think about the impact on the economy. Plain and simple, economic activity is generated by spending. The healthiest thing for us, economically speaking, is to have people spend money and to have them spend it locally. By injecting cash into the local economy, local people have jobs - local people with jobs means more people spending money locally.

Cash in the hands of working people gets cycled around the economy and spent over and over and over again - generating economic activity.

Cash in the hands of the wealthy doesn't get spent as much. A greater percentage of their money is saved or invested - removed from the local economy.

It makes much more sense to shift the tax burden from the working class and move it towards the wealthy. First off, they can afford it more and secondly they will benefit indirectly from the economic activity generated by the spending of the working class - whether its because of bonusses, businesses or returns on investments.

It's time that Alberta got rid of the flat tax, for the benefit of all of us.