Alberta’s flat tax: both progressive and useful, killed off for ideological reasons

In my time in public policy I have heard a lot of rubbish talked about a lot of issues, but one that must win some kind of prize in the area is Alberta’s much-maligned “flat tax”, now due to be axed by Rachel Notley’s New Democrats. The reason given? The tax is “regressive” and is to be replaced with a supposedly “progressive” multi-band or multi-rate income tax modelled on that found in the other provinces. But as my latest Economy Lab column for the Globe’s ROB lays out in some detail, the notion that the flat tax is not progressive is an old canard unworthy of anyone with a calculator and five minutes to think through the issues. So not only does the criticism fail (and therefore the case for eliminating the flat tax on “progressivity” grounds), it leaves out of account the important experiment it represented. Multi-rate income taxes undoubtedly create disincentives to work as you move up the income scale. Those disincentives are removed by a flat tax. Federalism is supposed to foster such bold experiments to test whether old policy prescriptions can be improved through innovation. The flat tax deserved to live….both because it was progressive and because it was telling us something about possible future directions for tax reform.