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When the Liberals increased the top personal income tax rate, many high earners simply used their CCPCs to shelter more of their income

This would explain why top earners were so relaxed about a higher personal income rate, and why they would be so upset about the changes to CCPCs: it will now be harder for top earners to avoid that new, higher top personal income tax rate.

To summarize the story so far: the Liberals raised the top personal income tax rate, many top earners were able to manoeuvre around it, and now the Liberals want to make it harder to shelter income from the top rate.

What happens next? One of the things to remember about high earners is that they have bargaining power — that’s why they have high incomes in the first place. They won’t simply take the tax hit and carry on with their lives; they will respond. Many will simply raise their fees so that their higher pre-tax incomes will offset their higher tax burdens.

Doctors, though, won’t be able to do that: their fees are set by the provincial health ministries. Many doctors — especially in Ontario — view the special tax treatment offered by CCPCs as compensation for accepting lower fees. Allowing doctors to incorporate probably seemed like a shrewd tactic on the part of provincial governments: it shifted the fiscal burden away from provincial health budgets and to the federal government.

One of the things to remember about high earners is that they have bargaining power

But now that these tax advantages have been eroded, doctors will be returning to fee negotiations with an eye to regaining lost ground. And doctors will likely have the upper hand in these negotiations: the threat of moving to the U.S. is most credible for medical practitioners, and especially for those just starting their careers. In the 1990s — when doctors’ fees last topped the policy agenda — it reached the point where almost one per cent of Canadian doctors were moving to the U.S. each year. Provincial health budgets are already the most vulnerable point in the Canadian public sector; increased fee schedules will only make a bad outlook even worse.