Taxation and the middle class

[tomh009]

Keep in mind that the present system isn’t really a system. I keep seeing articles about provinces complaining that they used to be a have province but now are a need province and can we please re-negotiate the formula? And I’ve never seen an article that actually explained the formula. As far as I can tell there is no formula, just a bunch of province-specific rules that need to be re-negotiated every time the status of various provinces changes.

Oh, it is a system, and it's not renegotiated each year. You can find the details here, for example:
https://www.policyschool.ca/wp-content/u...zation.pdf

It's a fairly long and detailed read, but it's very much a formula, it's not just the federal government arbitrary picking who should get money and who should not. A province's status may change, but it's only because that province is now financially better off than before.

Remember that well-off provinces are that way because they have well-off people with big incomes in them. Those people pay a much higher fraction of their income to the federal government in income tax. Same for corporations. So, on net (income tax minus block grants), rich provinces will pay into the system while poor provinces will receive.

The way equalization works today is similar to OAS (or welfare): the money is collected mostly from well-off people (progressive income tax) and distributed to those in need (OAS is income-tested and poor people receive more). A fixed per-capita block grant would give everyone the same, reducing the amount of income redistribution and thus increasing inequality.