British Columbia’s top personal income tax rates are back to where they were in the 1990s – and sa国际传媒’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 sa国际传媒 economy, the result of decades of sluggish growth. For perspective, from 1977 to 2001, sa国际传媒 had the average economic growth per person among any province. From 1990 to 2000, sa国际传媒 recorded a net decline of 5.9 per cent in per-person income (after tax, inflation-adjusted), while Ontario, Alberta and sa国际传媒 as a whole all experienced income gains.
High personal income taxes (PIT) were partly to . In 2000, sa国际传媒 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 sa国际传媒 went from having the second-highest top marginal personal income tax rate in sa国际传媒 to the second-lowest.
This made sa国际传媒 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, sa国际传媒’s economic performance was now above average.
Unfortunately, today we’re back to where we started. From 2017 to 2020, the Horgan government increased sa国际传媒’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, sa国际传媒 now has the top combined federal/provincial income tax rate in sa国际传媒 and the United States at 53.5 per cent.
And once again, sa国际传媒’s economy – and British Columbian incomes – have stagnated. sa国际传媒’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. sa国际传媒 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 sa国际传媒 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 sa国际传媒
Tegan Hill and Jake Fuss are economists with the Fraser Institute.
