Albertans like their cowboy hats big, their steaks bigger and their taxes simple. That’s the consensus from a panel of experts in the only province in Canada with a flat provincial income tax rate.

For the past six years, residents of Canada’s fastest-growing economy have paid a 10% tax on their income, regardless of whether they earned $100,000 or $100 million a year.

Frank Atkins, a professor of economics at the University of Calgary, thinks the Canadian Taxpayers Feder-ation is on to something with its proposal to reduce the number of federal income tax rates from four to two. He adds that he hasn’t heard anybody complain about Alberta’s flat income tax.

“I think we love it. What it has going for it is enormous simplicity. We have to do something to make income tax simpler and more transparent,” he says. “It’s getting to the point at which anyone with any kind of income has to go to a tax accountant to get his or her taxes done.”

Atkins scoffs at the suggestion that the province should add some progressiveness to its income tax system in order to increase the take from high net-worth individuals.

“Higher-income people pay more tax even at a flat rate. There’s absolutely no argument why you would want higher-income people to pay a higher tax rate,” he says. “There’s a huge disincentive there: you get taxed higher and higher as you move up. You want to remove that disincentive from the system. Canada could learn a lesson from Alberta.”

The flat tax has a lot of merits — simplicity being the main one, agrees John Carpenter, CEO of the Certified General Accountants of Alberta. But from a policy perspective, the flat tax flies in the face of what Carpenter understands to be one of Canada’s policy goals, which is to have a progressive tax system.

“If you have fewer brackets, you have fewer opportunities to gradually increase the rates,” he says. “The real issue is, what’s the revenue take under the new system? How simple and straightforward is it? How many people are coming off the tax rolls?”

A measure of progressiveness can be brought back in by increasing the threshold at which people pay taxes, Carpenter says: “You’re taking people right off the tax system, which, I think, is admirable.”

But while it’s nice to have a simple tax system, it’s what goes into determining your taxes that is more important, says Mike Unick, a partner in Myers Norris Penny LLP’s Calgary office. “Once you arrive at your income number, the calculation of the tax is fairly straightforward. I’m not sure it does as much simplification as people perceive.”

The problem with Alberta’s flat tax, Unick says, is that lower-income earners pay a greater proportion of their disposable income in taxes than higher-income people.

“Is that the result you want from an economic or tax policy point of view?” he says. “I’d question that. If you’re making $40,000 a year, you’re living off all of that. If you’re earning $200,000 a year, you have the ability to save and invest some.”

Alberta’s rationale for implementing its single flat tax rate in 2001 was to move away from the federal tax system and make Alberta’s increasingly simple and fair, says Jay O’Neill, director of communications for the Alberta government’s finance department.

“We have created a tax-friendly environment, not only on the personal level but also with corporate taxes,” he says. “We have benefits for the residents of Alberta and for people who do business here. Looking at where our economy is and the state of business and investments, it’s paid off.

“We don’t have a sales tax, either. It’s all part of the tax advantage for Alberta,” he adds.

The top 15% of Alberta’s income earners pay 67.7% of the province’s personal income taxes, O’Neill says, adding that a progressive tax system simply isn’t needed. “People who make the most money are the ones paying into the tax system,” he says. “Those who can’t afford to aren’t being taxed.”

At the same time as the flat tax was introduced, Alberta raised the personal exemption to $11,620 from $7,131 and the spousal exemption to $11,620 from $6,055. These moves knocked about 132,000 residents off the tax rolls.

And despite numerous calls for the flat tax to be lowered, O’Neill says there are no plans to change it in the short term. IE

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