There may not be much sympathy out there for the top one per cent high-income earner who, in 2018, will face a marginal tax rate of over 50 per cent in more than half the provinces in Canada. But there should be some attention given as to why a lower-earning parent of a dual-earning couple, with two kids and a combined family income of $50,000, can face a marginal effective tax rate of over 70 per cent.
To better understand what’s going on here, we first need to revisit the concept of a statutory tax rate and compare that to your marginal and average tax rates. Then we can look at your marginal effective tax rate (METR) and participation tax rates (PTR), two concepts highlighted in a new report out this week from the C.D. Howe Institute entitled, “Two-Parent Families with Children: How Effective Tax Rates Affect Work Decisions.”
In the report, researcher Alexandre Laurin finds that working parents with children — particularly low-income families — “face prohibitive tax rates that discourage taking on extra employment to get ahead … (with) mothers and poorer families … the most adversely affected by this tax trap.”
Before we look at Laurin’s findings and potential fixes, let’s take a look at the different types of tax rates.
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