That year, however, the federal Liberal Party formed the new government, and in Alberta, the NDP surprisingly came to power provincially. The new federal government promptly announced it was raising the rates on so-called high-income earners by “asking them to pay just a little bit more” (an offensive speaking point that was overused for the next four-plus years, especially when one understands how much high-income earners already pay when compared to the whole of Canada). The new “ask” would commence in 2016 by introducing a new high federal bracket that increased the top-end rate by four per cent.

The Alberta government also introduced new higher rates for 2015 and 2016. When the dust settled, Alberta’s highest marginal personal tax rate increased to a top end of 48 per cent, a large increase from its previous low and significantly narrowing the gap between some of the provinces that already had high personal rates, such as Ontario, Quebec and some of the Maritime provinces.

Technically, they are not wrong. Have a look at the data in the accompanying table from a 1954 publication, Finances of the Nation, by the Canadian Tax Foundation. You’ll quickly see that the highest marginal rates topped 80 per cent, with the high being 97.8 per cent in 1943.

But let’s put some of that into context. First, Canada’s personal income tax system was relatively young from the 1930s to the 1950s. The amount of actual taxpaying individuals compared to the population as a whole was very low compared to today. In addition, capital gains were not taxable back then (capital gains did not become taxable in Canada until 1972). So, of course, there was no shortage of gamesmanship taken by the small number of high-income taxpayers to convert their income into non-taxable capital gains.

“We are persuaded that high marginal rates of tax have an adverse effect on the decision to work rather than enjoy leisure, on the decision to save rather than consume, and on the decision to hold assets that provide monetary returns rather than assets that provide benefits in kind. We think there would be great merit in adopting a top marginal rate no greater than 50 per cent. With such a maximum marginal rate, taxpayers would be assured that at least half of all gains would be theirs after taxes. We think there is a psychological barrier to greater effort, saving and profitable investment when the state can take more than one half of the potential gain.”

In my experience, personal behaviours significantly change when personal tax rates approach 50 per cent (similar to what the Royal Commission discussed in its report above). People will search for ways to lower their tax bills, especially when the perception is that there is not much value being provided when compared to the cost (or, as many politicians say, “investment”).

There is a reason why significant amounts of high-income earners/wealthy persons have recently been leaving Canada. And it’s the same reason why this country has a difficult time attracting top-end talent in medicine, biotech, technology, professional sports and other industries/professions. Whenever I raise this alarm bell, I routinely get a rebuttal that I’m exaggerating. I’m not.