The new Liberal government has proposed a tax bracket trade. On one side of the trade is the creation of a new top tax bracket that will increase taxes on Canada’s richest and help reduce income inequality. On the other side is the lowering of the tax rate in the second bracket, nominally to help the middle class. However, adjusting the second tax bracket is actually of greater benefit to members of the upper class, as long as they do not earn enough income to put them in the new top bracket.
This report provides a distributional analysis of the Liberal proposal and explores four other tax reform options that retain the new top bracket, but alter different parts of the federal tax system to better target the middle class. Of the four, it finds increasing the Working Income Tax Benefit likely provides the best targeted benefit to middle class families.