I
that even struggling New Mexico, the only U.S. state to end the last four decades less economically free than it began, is still more prosperous than most Canadian provinces. That’s largely a result of Canada
losing ground in terms of wealth
relative to its southern neighbor after decades of hand-in-hand growth. But Canada’s provinces outstrip almost all states in at least one area.
Unfortunately, that area is the tax burden that provincial and state governments inflict on residents.
In a
, the Fraser Institute’s Tegan Hill and Nathaniel Li point out that, until a decade ago, Alberta offered the lowest combined federal and provincial/state personal income tax rate on the North American continent. “Paired with no provincial sales tax, the ‘Alberta Tax Advantage’ made the province an incredibly attractive place to start a business, work, and invest,” they write.
But Albertans’ taxes went up in 2015. At 48 per cent, Alberta now has the tenth-highest top personal income tax (PIT) rate in Canada and the U.S. While lower than every other province but Saskatchewan, this is higher than peer energy-producing U.S. states that compete for workers and investors. Worse, Alberta imposed its top rate at a relatively low anything over $355,845 (CAD) in 2024. “By comparison, the
top rate in competing U.S. jurisdictions
applies at $834,688 (CAD).” Among Canada’s provinces, only Newfoundland and Labrador imposes its top combined rate at a higher threshold — $1,103,478 (CAD) — than any state.
Among U.S. states, California’s combined top personal income tax rate is the highest — though lower than that of every province but Alberta and Saskatchewan. Hawaii is tied with Alberta. Notably, Alaska, Texas, and Wyoming, among energy-rich jurisdictions, don’t tax personal income at all.
It’s not just the top marginal rate paid by the wealthiest that stings so sharply.
“An Albertan with $50,000 in annual taxable income, for instance, faces a combined marginal tax rate of 25.00 per cent, while the combined rate in select U.S. jurisdictions ranges from 12.00 to 16.90 per cent, a gap of between 8.10 to 13.00 percentage points,” write Hill and Li. “The gap becomes smaller, but continues to exist at $75,000 and $100,000, ranging between 3.38 and 8.50 percentage points.”
And, while Saskatchewan has the lowest combined top personal income tax rate in Canada, it taxes lower incomes a bit more heavily than Alberta.
When it comes to top combined federal and provincial/state capital gains tax rates, California has the highest tax burden in North America. But eight Canadian provinces rank immediately after California in their capital gains tax burdens. Saskatchewan, at 18, ranks one slot better than Alberta. But once again, the top rate applies at a lower threshold — $250,000 for Saskatchewan and the portion over $355,845 for Alberta — compared to CAD $710,789 for U.S. jurisdictions.
In terms of combined federal and provincial/state sales taxes, the nine most heavily taxed jurisdictions are all Canadian provinces. Alberta, to its credit, still has no provincial sales tax, only a federal levy, which puts it close to the other end of the rankings. “Alaska is the only energy jurisdiction that has a lower sales tax (1.82 per cent) than Alberta. Four U.S. states — Montana, New Hampshire, Oregon, and Delaware — have no sales tax (federal, state, or local),” note Hill and Li.
It’s more of a mixed bag when it comes to combined corporate income tax rates which are “one of the most economically damaging types of taxes because they reduce returns from business investment, which stifles innovation, lowers wages, impacts job creation, and lowers overall economic growth,” according to Hill and Li. The most heavily taxed jurisdictions include both states and provinces. Alberta, which once had the lowest corporate income tax rate, still comes in at a respectable seventh lowest between Canada and the U.S. — far better ranked than also energy-rich Alaska, but more highly taxed than Wyoming, Texas, and South Dakota.
Taxes fund government services. But they do so by reducing the return on people’s labour and investments, and there’s always disagreement about how much government people want. High taxes can deter entrepreneurs from starting and growing businesses. They can even drive people away.
Last year, a
published in the American Economic Journal: Economic Policy looked at the adoption of income taxes by U.S. states from 1900 to 2010. While governments increased their revenues, they didn’t collect as much as they expected. That’s because, as
by the University of California-Riverside, “the introduction of income tax in the post-World War II era led to out-migration by wealthy Americans.” That is, people with means moved from high-tax states to lower-tax ones.
Co-author Ugo Antonio Troiano warned politicians pushing for changes in tax policies that “raising taxes too much might backfire, as the state might lose too many relatively wealthy contributors.”
The ability of taxes to repel people has only increased as it’s become easier and more affordable (
) to move. In January of this year, Katherine Loughead of the Tax Foundation examined data from the U.S. Census Bureau, U-Haul, and United Van Lines. She found that “Americans are continuing to leave high-tax, high-cost-of-living states in favor of lower-tax, lower-cost alternatives.”
“Of the 26 states whose overall state and local tax burdens per capita were below the national average in 2022 (the most recent year of data available), 18 experienced net inbound interstate migration in FY 2024,”
Loughead. “Meanwhile, of the 25 states and DC with tax burdens per capita at or above the national average, 17 of those jurisdictions experienced net outbound domestic migration.”
That doesn’t mean that everybody is going to end up in Texas, even if it
. For one thing, it’s more difficult for people to cross national borders than it is for them to move from one state or province to another. And pulling up a life to restart someplace else is always a challenge.
But many people remain very mobile, especially in the energy industry, which often requires a willingness to relocate. Plus, investment flows where it gets the highest returns, with borders of any sort offering little resistance. That means Alberta and Saskatchewan are poised to benefit when competing with other provinces for productive Canadians. But all of Canada’s provinces are currently at a disadvantage when they’re competing with U.S. states for investors and entrepreneurs.
We could all benefit from less of a bite by the tax man. That’s even more true of Canada than of the U.S.
National Post
