A marginal effective tax rate
measures the wedge between the marginal social return to a capital asset and the rate of return earned by the investors who finance its purchase.
Theory posits that marginal effective tax rates
on factor incomes distort the efficient allocation of resources and therefore reduce output growth.
The mirror image of the net compensation rate is the marginal effective tax rate
By 2013, Quebec's marginal effective tax rate
on capital will fall to 17.
The chief methodology for applying this conceptual approach has been the King-Fullerton framework for comparing marginal effective tax rates
for different types of assets in different countries.
The disincentive effects of high marginal effective tax rates
on incremental earnings--the loss of various cash and in-kind benefits as well as the payment of additional taxes--are pervasive.
Taking into account the elimination of the federal capital tax on large non-financial corporations and some of the provincial tax changes that have been legislated (except for Ontario's), by 2010 Canada's marginal effective tax rate
will decline almost 2 percentage points to 37.
The marginal effective tax rate
is thus the tax wedge between the net and gross of tax cost for each input.
The tables show marginal effective tax rates
on capital in the aggregate and by broad asset classes -- buildings, machinery and equipment, inventories, and land.
For lower-income retirees, marginal effective tax rates
on taxable pension income are very high: the combined effect of income taxes and clawbacks of federal and provincial income-tested benefits such as the federal GIS and associated provincial supplements means that some low-income retirees can expect to pay marginal effective tax rates
of as much as 80 percent on their PRPP savings.
The system imposes excessive marginal effective tax rates
that lack fairness.
Currently, some families find the reduction in ghild benefits from increased income, coupled with taxes result in marginal effective tax rates
in excess of 100%.
However, marginal effective tax rates
are difficult to observe across the entire economy.
Such high marginal effective tax rates
on income also deter people from investments in education that improve their future earnings, counteracting the effect of government subsidies on education (Mintz 2001, Collins and Davies 2005).
The second thing to note is that, although the cost of producing R&D is subsidized in all provinces, as indicated by the negative marginal effective tax rates
on R&D costs, the size of the subsidy varies substantially across the provinces.