EISEN, HILL: U.S. flat-tax revolution should see Smith gov’t resurrect single income tax rate

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A little more than a decade ago, Alberta had one of the most competitive tax environments in North America. Since then, policy changes on both sides of the border have badly undermined Alberta’s competitiveness.

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It’s easy to understate just how quickly and severely Alberta’s tax environment has changed. To understand the scale of the shift, it’s useful to compare top personal income tax rates, which create more economic distortion (e.g. discourage people from working, saving and investing) and impose a greater drag on growth than lower income tax rates. Higher top personal income tax rates also damage a jurisdiction’s ability to attract and retain skilled workers who help drive economic growth.

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Going low to high

In 2014, Alberta’s single-rate provincial personal income tax (10%) combined with the top federal rate (29%) produced a top combined income tax rate of 39% in the province. This was the lowest top rate in Canada and the U.S.

In 2015, the Notley government scrapped Alberta’s single-rate and introduced a five-bracket personal income tax system with a top rate of 15%. Then in 2016, the Trudeau government introduced a new top federal rate of 33% — four percentage points higher than the previous top federal rate. Consequently, Alberta’s top combined rate (again, that’s provincial and federal) increased by nine percentage points, fundamentally weakening Alberta’s tax competitiveness.

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Since then, developments south of the border have further weakened Alberta’s position. In 2018, the Trump administration reduced the top federal rate in the U.S. by 2.6 percentage points (from 39.6 % to 37%), and since 2021, 23 states have reduced their top personal income tax rates. In fact, from 2021 to 2025, eight U.S. states enacted laws that implemented or began phasing in a single-rate system. Once those phase-ins are complete, 25 out of 50 states will either have a single-rate tax or no state-level personal income tax at all. In other words, with this ‘flat-tax revolution’ south of the border, many U.S. states have essentially adopted the policy that once helped make Alberta one of the most attractive tax jurisdictions on the continent.

Alberta left in the dust

In fact, Alberta, which once had a lower top combined personal income tax rate than any U.S. state, now has a higher rate than every U.S. state except California (and the same top rate as Hawaii). And Alberta’s top combined rate is now 11 percentage points higher than Texas’s top rate. It’s easy to see how a gap of that size makes it harder for the province to attract talent and investment.

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Tax hikes in Edmonton and Ottawa badly undermined Alberta’s tax competitiveness in the 2010s, and the flat tax revolution in the U.S. has made matters worse. To help restore the province’s lost competitiveness and improve its ability to attract talent and investment, the Smith government should return to a pro-growth approach to personal income taxation centred on a moderate and competitive single rate.

Ben Eisen is a senior fellow and Tegan Hill is director of Alberta policy with the Fraser Institute.

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