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According to a new report from the Fraser Institute, every additional dollar the federal government collects by raising personal income taxes costs $2.86 in reduced economic activity.

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The Conservative Tax Think Tank study also found that the decrease in economic activity when corporate tax is increased by $1 is $2.02.

“When the federal government raises taxes, the cost to Canadians is not just increased taxes,” study co-author Bev Dahlby said in the report: What are the economic costs of increased revenues by the Canadian federal government?

“This means less investment, less entrepreneurship, less business activity and ultimately a smaller tax base, which imposes unprecedented costs on Canadians.

“When governments raise tax rates, they affect the behavior of workers, businesses, entrepreneurs and investors…higher tax rates distort decisions related to starting a business, savings and investment, labor effort and expansion of an existing business, all of which impose costs on the economy in the form of lost prosperity. raises tax rates, the real cost to the economy is much higher.

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The researchers found that a 1% increase in the corporate income tax rate results in a 3.36% reduction in the corporate tax base, while a 1% increase in the corporate income tax rate on personal income leads to a reduction of 1.97% of this tax base.

None of this is to say there is no value in paying taxes, given that they pay for vital services such as health care, income support programs and public infrastructure.

But he points out that there is a societal cost to higher taxes in reduced economic growth that must be weighed against the apparent benefits of paying them.

Advocates of higher taxes often make the argument that investing every extra tax dollar in a particular government program will ultimately save public money by reducing the need for even greater government support. over time.

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But that ignores the question of whether the increase in spending will be done efficiently and whether it will actually do what is promised.

Simply spending more money on government services does not automatically mean that those services will improve.

Governments at all levels, for example, often tie more spending to better services for the public in health care, but that won’t be true if the money-spending pattern is broken.

For example, it is uncertain whether the tens of billions of dollars in new health care spending over the past two years due to the COVID-19 pandemic will improve the quality of health care in the long run. term.

Numerous international studies of health care in Canada, when assessed against comparable countries with universal health care systems that are members of the Organization for Economic Co-operation and Development, have generally found that Canadians pay top dollar for health care through their taxes for often poor results.

Indeed, one of the reasons why lockdowns in Canada during the pandemic have been so long and severe – endangering both the health and economic well-being of the public – was that our hospital system, which operates in overcapacity in normal times, was so easily overwhelmed by the added pressure caused by COVID-19.

Whether that will change after the pandemic is uncertain, and it would be foolish to simply assume that higher taxes and more spending will solve the problems unless the money is spent wisely and efficiently.