Calgary Economy

[MalcolmTucker]

Originally Posted by Full Mountain

Right, might have to go to 8/10/14/18.

What is the basic exemption adjusted based on currently?

8.0% $ 16,977
10.0% $ 33,954
14.0% $ 67,908
18.0% $ 135,816

= an extra $933 million or a 10.64% tax increase in income tax revenue, and is a tax cut until you make more than $75000 a year. But try explaining that to people! People making $68 k a year will think you are hiking their taxes by 40%!!

The basic personal exemption was set high to make sure when Alberta went to a flat tax low income groups didn't have a tax increase. It was then indexed to CPI.

Edit: and still only raises about a billion. Realistically you might want to raise an additional $2.5 - $5 billion a year.

[Full Mountain]

Originally Posted by MalcolmTucker

Brackets, remember that higher income people also pay taxes in the lower brackets, so to net out higher revenues, the cut in rate for the lowest bracket needs to be made up. An 8/10/12 system would require the 12 threshold to be pretty low to make up for the lost revenue from all taxpayers of the 8% bracket, or you would have to reduce the exemption.

at 8% $16,977
10% $40,000

to make an additional $50 million the 12% bracket needs to be at $55,000 a year.

Basic threshold calculator:

https://docs.google.com/spreadsheets/d/1...LiYYNTIKB_pK6OIe-pF_XD0/edit?usp=sharing

I think that should enable you to download and try your own brackets.

Warning: the sheet is based on old data (I think 2011 or 2010), so the PIT numbers are not directly comparable to this budget year.
But it will give you an idea of why it is hard to make more money from PIT.

Originally Posted by MalcolmTucker

8.0% $ 16,977
10.0% $ 33,954
14.0% $ 67,908
18.0% $ 135,816

= an extra $933 million or a 10.64% tax increase in income tax revenue, and is a tax cut until you make more than $75000 a year. But try explaining that to people! People making $68 k a year will think you are hiking their taxes by 40%!!

The basic personal exemption was set high to make sure when Alberta went to a flat tax low income groups didn't have a tax increase. It was then indexed to CPI.

Edit: and still only raises about a billion. Realistically you might want to raise an additional $2.5 - $5 billion a year.

Wow, that calculator is eye opening hard to make it balance.

I don't think there is a single income source that can cover the $5B we need to look at multiple sources along with some review of our spending to ensure that it aligns with priorities, but as you mentioned the vast majority of spending is on items that the majority of Albertans don't want to see cuts to.

[MalcolmTucker]

Originally Posted by Full Mountain

Wow, that calculator is eye opening hard to make it balance.

Exactly. Unfortunately the quality of policy debate through the media here is very poor.

There are no easy solutions to this problem, or else the province wouldn't have attempted to muddle through for the past 5/6 years.

[ByeByeBaby]

Originally Posted by MalcolmTucker

We already have a dedicated slice for infrastructure, but I get your point.
Doesn't account for behavioral responses to tax changes.

Basic threshold calculator:

https://docs.google.com/spreadsheets/d/1...LiYYNTIKB_pK6OIe-pF_XD0/edit?usp=sharing

I think that should enable you to download and try your own brackets.

Warning: the sheet is based on old data (I think 2011 or 2010), so the PIT numbers are not directly comparable to this budget year.
But it will give you an idea of why it is hard to make more money from PIT.

Cool spreadsheet, but the formulas in columns K and L are wrong, giving tax discounts instead of increases to the highest bracket taxpayers.

e.g. K2 reads:

=IF(D2<$C$28,0,(D2-$C$28)*($B$28-$B$27))

but should be:

=IF(D2<$C$28,0,(D2-$C$28)*($B$28-$B$29))

[MalcolmTucker]

^ I guess since I never used the full 6 bracket system it never became obvious! Last played with this in 2011.

Feel free to upload a fixed copy and share it!

[ByeByeBaby]

Originally Posted by MalcolmTucker

^ I guess since I never used the full 6 bracket system it never became obvious! Last played with this in 2011.

Feel free to upload a fixed copy and share it!

Sure; the other thing I've updated is the average income of the highest income bracket - you have $300K as the average income for filers with over $250K income; in fact, this is distorted by very high income individuals. As it happens, StatsCan has a table showing the distributions of high income tax filers, and in 2011 in Edmonton the cutoff for the 1% group was $250K - but the average income of that group is $542K. (The cutoff for the 1% in Calgary was $396K, with an average income of $960K.)

Updated link

[MalcolmTucker]

Yeah, it is quick and dirty. I figured the behavior changes it would induce would equal out the error at the top end, and that within the different tiers the error would equal out enough to still be valid as an intellectual tool.

If you increase the income tax, it would incent paying out more professional corp earnings as dividends or capital gains instead of as income for high earners.

[Full Mountain]

Some interesting notes regarding populations changes that impact this discussion

Over 2008-2012
People earning less than $50,000 - decrease of 3,080
People earning over $50,000 - increase of 203,440

source: [Stats Canada]

Income Distribution Chart

So with a bit of playing I got to this:

Rate Threshold
8.0% - $17,282
10.0% - $34,564
14.0% - $69,128
18.0% - $138,256
22.0% - $200,000
26.0% - $250,000

Results in a ~$1.7B increase in revenue, based on a basic exemption of $17,282 (2012).

Everyone under $75k pays less and between 75k-100k pays a bit more (~$400 per year), the majority of the burden is placed on the upper end with just over $900M coming from the top bracket alone.

Note this is with the $300k income for the top bracket

Updated Spreadsheet Here w/ updated population numbers and corrected formulas

[suburbia]

What would a marginal tax rate bump to 12% above $100K + a 3% sales tax net?

They need mega-bucks, so I'm, not sure if that would be enough, but the above increments should be palatable IMHO.

This unfortunately can't be earmarked in the first phase for things like transit upgrade as someone suggested. We need to back-fill the deficit first. However, it could open up opportunity in future.

[Full Mountain]

Originally Posted by suburbia

What would a marginal tax rate bump to 12% above $100K + a 3% sales tax net?

They need mega-bucks, so I'm, not sure if that would be enough, but the above increments should be palatable IMHO.

This unfortunately can't be earmarked in the first phase for things like transit upgrade as someone suggested. We need to back-fill the deficit first. However, it could open up opportunity in future.

If you bumped the top 3 brackets in my example up to 12 and left everything else at 10 you would get $240M, not much really. Not sure how much the sales tax would pick up.

[Fuzz]

"The Government of Alberta estimates that a five per cent sales tax (harmonized with the GST) would generate between $5 billion and $6 billion depending on how the tax and offsets were structured," writes senior Conference Board economists Alicia Macdonald and Todd Crawford in a commentary in advance of a report being released Tuesday.

Read more: http://www.ctvnews.ca/canada/is-pst-the-...e-board-says-yes-1.1172035#ixzz3OpVIXAOU

From 2013

[suburbia]

Originally Posted by Full Mountain

If you bumped the top 3 brackets in my example up to 12 and left everything else at 10 you would get $240M, not much really. Not sure how much the sales tax would pick up.

Sorry I hadn't seen your calcs previously. Yeah - that isn't much, and in the range of what a gasoline tax increase would do. That tells me a sales tax is really the only thing that can tackle the deficit at the level we're talking about. It is also the fairest IE the most you spend, the more you pay.

Regarding potential sales tax revenue, BC got about $5B in fiscal 2009/10, and based on their population then and ours now, that's about the amount we'd net if we mapped a provincial tax at the same level (7%) and on the same items. Amazingly, even that wouldn't get us to break-even. Using this as a rough guide, tacking on 5% PST in Alberta would get us about $3.6B ... covering half the deficit. For the other half, it would need to be split between cost cutting, pushing out 'some' capital projects, increased marginal tax for the higher brackets, bump in gas taxes and borrowing.

The above will sound absurd to many, but I think many of us may not have really internalized the gravity of the situation.

EDIT - just read the immediate prior note. I'm wondering how the gov is estimating over $1B per one percent of PST when BC was achieving less, but that does help. Bottom line of my comment is that a PST is the only tax that can get us the numbers needed, unless if we change the personal income tax for lower income brackets, which I'm not a fan of.

[Me&You]

Originally Posted by suburbia

Sorry I hadn't seen your calcs previously. Yeah - that isn't much, and in the range of what a gasoline tax increase would do. That tells me a sales tax is really the only thing that can tackle the deficit at the level we're talking about. It is also the fairest IE the most you spend, the more you pay.

Regarding potential sales tax revenue, BC got about $5B in fiscal 2009/10, and based on their population then and ours now, that's about the amount we'd net if we mapped a provincial tax at the same level (7%) and on the same items. Amazingly, even that wouldn't get us to break-even. Using this as a rough guide, tacking on 5% PST in Alberta would get us about $3.6B ... covering half the deficit. For the other half, it would need to be split between cost cutting, pushing out 'some' capital projects, increased marginal tax for the higher brackets, bump in gas taxes and borrowing.

The above will sound absurd to many, but I think many of us may not have really internalized the gravity of the situation.

EDIT - just read the immediate prior note. I'm wondering how the gov is estimating over $1B per one percent of PST when BC was achieving less, but that does help. Bottom line of my comment is that a PST is the only tax that can get us the numbers needed, unless if we change the personal income tax for lower income brackets, which I'm not a fan of.

Alberta's GDP is about 50% higher than BCs...

That means that there's a lot more money sloshing around to incur PST on...

It makes sense that AB can generate similar revenues as BC at a PST rate 1/3 lower...

[MalcolmTucker]

Sales tax and a VAT different too. Sales tax would mean having to put in place a big bureaucracy to collect it, which usually costs about 1 point of revenue iirc.

[Me&You]

Originally Posted by MalcolmTucker

Sales tax and a VAT different too. Sales tax would mean having to put in place a big bureaucracy to collect it, which usually costs about 1 point of revenue iirc.

And VAT?

[MalcolmTucker]

Originally Posted by Me&You

And VAT?

Well, there would be no incremental administrative burden if the province used the exact same exemption rules as the feds.

[Me&You]

Originally Posted by MalcolmTucker

Well, there would be no incremental administrative burden if the province used the exact same exemption rules as the feds.

Maybe I'm missing something, but how would that preclude any additional expense / bureaucracy involved in the collection of the VAT vs. a PST?

[MalcolmTucker]

Originally Posted by Me&You

Maybe I'm missing something, but how would that preclude any additional expense / bureaucracy involved in the collection of the VAT vs. a PST?

It is already collected by the federal government. Why would we have to hire a bunch of new people to do the job a second time?

[suburbia]

Originally Posted by Me&You

Alberta's GDP is about 50% higher than BCs...

That means that there's a lot more money sloshing around to incur PST on...

It makes sense that AB can generate similar revenues as BC at a PST rate 1/3 lower...

PST is not on GDP, but rather largely on consumer spending. There may be some link, but the main reason Alberta's GDP is higher is because of energy export, which would not have PST applied.

Anyway - the answer is probably somewhere in betweeen.

[suburbia]

Originally Posted by MalcolmTucker

It is already collected by the federal government. Why would we have to hire a bunch of new people to do the job a second time?

So like an HST? ... and you'd peel back from the Feds?