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The Personal Income Tax :eTax Rate StructureThe federal personal income tax from 1987 to 2001, had three tax brackets — officially. Forexample, for 2000, income up to $30,004 was taxed at 17 percent, every dollar earned in excessof $30,005 was taxed at 25 percent, up to an income of $60,009, and every dollar in excess of$59,180 was taxed at 29 percent. That structure meant that theaveragetax rate increased from17 percent ( on all income levels below $29,590 ), to approach 29 percent as a person’s income levelincreased towards infinity. Prior to 1987, there were more tax brackets : 15 brackets in 1949, and10 in 1981.Since 2002, the number of tax brackets has increased to 4. In 2013, income below $43,561 wastaxed at 15 percent, income between $43,561 and $87,123 at 22 percent, income between $87,123and $135,054 at 26 percent, and income in excess of $135,054 at 29 percent. (Why the “not round”numbers for the boundaries between brackets?These brackets are indexed to inflation, and sochange each year according to a fixed formula.)Also, the first $11,038 of taxable income is exempt. This “basic exemption” is treated as atax credit on the tax return : each person gets a non–refundable tax credit of 15% of $11038, or$1655.70 (if her tax payable is larger than that credit).However, this apparent simplicity is quite misleading. The actual situation is best described ashaving many different brackets — with the marginal rates going up and down as we move betweenbrackets. An example of this sort of structure is the case of Alberta in 2011, depicted in figure17.2, on page 364 ofRosen, Wen, and Snoddon. That picture shows about 13 different marginalrates, and also shows the marginal rates rising, and then falling, and then rising again.What increases the complexity of the tax structure so much, compared with the 4 bracketslisted on the federal tax return?There are really three types of complication (not all includedin the picture in Rosen et al).First of all, there are the other taxes on income : CPP and EIpremia.These taxes are not part of the personal income tax, so it may be a bit misleading toinclude them here, but they are taxes on people’s ( labour ) earnings. These taxes certainly arerelevant in calculating how much of an added dollar earned is taxed, in order to derive the effect oftaxation on people’s after–tax rate of pay. Second, there are theprovincialtax brackets. Theseare definitely part of the personal income tax. Alberta has only 1 provincial tax bracket. But everyother province has at least 3 ( Ontario has 3, British Columbia has 5. ). And some provinces (suchas Ontario) still have surtaxes on income tax, which is really just an additional bracket at the topwith a higher rate. Third, there are the “clawbacks” of certain low–income subsidies, which imposeaneffectivemarginal tax on income. Again, these are not part of the official personal income tax.