British Columbia Finance Minister Brenda Bailey, citing uncertainty due to U.S. tariff threats, recently announced that her government would not implement a $1,000 rebate that Premier David Eby had promised last fall on the campaign trail.
However, if the Eby government wants to lighten the burden on B.C. families—while also improving the province’s tax competitiveness and helping spur economic growth—it should reduce personal income taxes in its upcoming provincial budget.
The need for substantial income tax reform is clear. British Columbians at many different income levels face some of the highest marginal tax rates in North America.
First, let’s define the terms. Under a progressive tax system, an individual’s “marginal” tax rate rises with their income. Marginal tax rates are important because they influence the economic decisions people make. An individual decides whether it’s worth it to work an extra hour of overtime, for instance, based in part on how much of the extra money that they earn they will keep, rather than hand over to the government.
High-income individuals earning $300,000 in B.C. face the fourth-highest combined (federal and provincial) marginal personal income tax rate (at 53.5 per cent) in Canada and the United States. This is a problem for the provincial economy because it makes it harder for B.C. to attract high-skilled mobile workers.
As we move down the income scale, at $150,000, the province has the eighth-highest combined personal income tax rate in Canada and the U.S. And the tenth-highest at $50,000—slightly lower than every other province but far higher than many nearby Pacific region states with whom B.C. competes for investment and talent. For example, the combined federal and state marginal tax rate in Washington state is 10.7 percentage points lower than the rate in B.C.
In light of the scale of the challenge, Minister Bailey and Premier Eby should craft and ambitious plan to reduce marginal income tax rates. This would be a welcome change in direction for a province that has repeatedly hiked income taxes over the past decade. If the goal is to promote economic growth, particularly during uncertain economic times, reducing the top income tax rate to be more competitive with nearby jurisdictions is especially important given the preponderance of evidence showing high personal income tax rates hurt the economy by reducing incentives to work and invest.
Ben Eisen and Jake Fuss are analysts at the Fraser Institute.
