Canada’s income tax system is becoming dangerously progressive, the Fraser Institute says.

The Vancouver-based think-tank issues its warning in a newly released report, saying that Finance Minister Jim Flaherty set a “risky precedent” by introducing tax credits for low- and modest-income Canadians. It singles out the Working Income Tax Benefit, introduced in 2007, as the minister’s most serious departure from the path of fiscal responsibility.

“We’re starting to see the expansion of key programs like the Working Income Tax Benefit (WITB). If that trend continues like it has in the United States, a larger and larger share of the population will be exempted from income and payroll taxes, leaving the rest of society to pay a bigger share,” said Jason Clemens, executive vice-president of the Fraser Institute and co-author of the report. “In order for citizens and households to be mindful of government costs, they must face some portion of the cost.”

Fortunately for the working poor, the think-tank’s advice came too late for this year’s federal budget.

Until now, there has been virtually no criticism of the Working Income Tax Benefit. The amount is relatively modest — a maximum of $925 for an individual, $1,680 for a couple or lone parent. And the purpose is clear: to make work pay more than welfare.

The Fraser Institute hopes to sow seeds of doubt. This tax break and other programs like it are shifting the balance between contributors and noncontributors to the tax system, it contends. This development threatens to exempt an ever larger segment of the population from paying a share of the government’s bills.

The study, entitled Tax Payers and Tax Takers, is accurate as far as it goes. All the figures in it are drawn from government sources. The arithmetic is faultless.

But it is undercut by two problems. Germane facts are missing. And the institute’s interpretation doesn’t jibe with its own numbers.

The most glaring omission is the number of Canadians who receive the Working Income Tax Benefit. Anyone reading the study would assume it is large. In fact, according to Canada Revenue, it is 1.4 million out of 27 million tax filers — hardly a horde.

Nor is there any cost-benefit analysis of WITB. The study is explicit about the price tag: $1.03 billion in foregone revenue. But it makes no attempt to estimate the amount flowing into the treasury in increased GST payments, payroll taxes and fees.

The most puzzling weakness is the mismatch between the study’s numbers and its conclusions. It points out, for example, that 38 per cent of tax filers face no income tax liability. This prompts Clemens to warn: “Democracy can’t function when a sizeable majority of tax filers are exempt from the cost of decisions and pay little or no direct taxes.”

When did four of 10 get to be a sizeable majority?

Similarly, the study suggests that the Working Income Tax Benefit has caused an erosion in Canada’s tax base. This is clearly at odds with the facts. In 2000, 32 per cent of tax filers owed no money. Today, the proportion is six percentage points higher. But the reason for that is a series of increases in the Basic Personal Amount (currently $10,822), the threshold at which Canadians start paying taxes.

By the end of the 49-page study, it is hard to see what the Fraser Institute finds so alarming. The poorest 20 per cent of Canadians earn 4.9 per cent of the total income pay 2 per cent of it taxes. The richest 20 per cent earn 47.1 per cent of national income and carry 54.3 per cent of the tax burden. That’s the way the system was designed to work: the more a person makes, the more he or she pays in taxes.

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The think-tank may not like progressive taxation. But it has not marshaled the evidence to prove it poses any danger to the nation.