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Perhaps it was my grade ten Introductory Economics high school course that first piqued my interest in taxation policy, eventually leading to a career dedicated to helping Canadians navigate the complexities of our tax system while trying to understand the policy rationale behind our myriad tax rules and regulations.

One of the economics lessons I learned early on is that governments essentially have two choices when it comes to managing a budget: cutting spending or raising taxes. But what if raising taxes actually leads to lower tax revenues? That possibility was not covered in our Grade Ten class but seems to be playing out right here in Canada.

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According to a new study out this week from the C.D. Howe Institute, the federal government’s decision to raise taxes on the top one per cent of income-earners likely only yielded about a third of the tax revenues that would have been raised without what’s known as the “behavioural response.” In turn, this also resulted in provincial budgets suffering fiscal losses greater than the federal revenues raised.