In December 2024 the Bank of Canada published a staff working paper asking why Canadian output per adult keeps falling further behind the American figure. The answer its authors reached was not about hours worked or capital stock in any conventional sense. It was about who is still in the country. The top ten percent of the income distribution accounts for roughly three quarters of the gap in GDP per adult between Canada and the United States, and up to two thirds of the measured labour productivity gap. The paper estimates that roughly 40 percent of Canadians who would rank in the top one percent of earners have already emigrated south, along with somewhere between 30 and 50 percent of the next nine percentiles.
The authors describe their own numbers as possibly shocking. They are. A country does not lose four in ten of its highest earners by accident, and it does not recover them by waiting.
Tax is not the whole explanation. Compensation differentials, the depth of American capital markets, market size and the gravitational pull of a few specific cities all matter, and in many cases matter more. But tax is the part of the equation that sits entirely within Ottawa's control, and Canada has spent two decades making it worse rather than better.
What the Ontario rate structure actually looks like in 2026
Precision matters here, because the headline number gets quoted loosely and then dismissed on technicalities. What follows is the combined federal and Ontario marginal rate on an additional dollar of ordinary employment income in the 2026 tax year, for a single filer claiming only the basic personal amount. Capital gains and eligible dividends are taxed differently and are not shown.
| Taxable income | Marginal rate | You keep |
|---|---|---|
| $75,000 | 29.65% | $0.70 |
| $100,000 | 31.48% | $0.69 |
| $125,000 | 43.41% | $0.57 |
| $150,000 | 44.97% | $0.55 |
| $200,000 | 47.97% | $0.52 |
| $250,000 | 49.53% | $0.50 |
| $258,482 and above | 53.53% | $0.46 |
Federal brackets for 2026: 14 percent to $58,523, 20.5 percent to $117,045, 26 percent to $181,440, 29 percent to $258,482, 33 percent above. Ontario brackets: 5.05 percent to $53,891, 9.15 percent to $107,785, 11.16 percent to $150,000, 12.16 percent to $220,000, 13.16 percent above, plus surtaxes of 20 percent on provincial tax over $5,818 and a further 36 percent on provincial tax over $7,446.
Two things in that table deserve more attention than the 53.53 percent figure everyone quotes.
The first is the jump between $100,000 and $125,000. The marginal rate rises roughly twelve points across that stretch, because the federal 26 percent bracket, Ontario's 11.16 percent bracket and the full 36 percent surtax all engage within a narrow band. Nobody designed that cliff. It is the residue of three separate decisions made by two governments at different times, and it lands squarely on senior nurses, experienced tradespeople running their own shops, mid career engineers and the sort of household that would describe itself as comfortable rather than wealthy.
The second is that Canada reaches its top rate early. The 33 percent federal bracket begins at $258,482. The American top federal bracket of 37 percent does not begin until US$640,600 for a single filer and US$768,700 for a married couple. Measured against each country's own average wage, and setting the exchange rate aside entirely, Canada arrives at its highest marginal rate at under four times the average wage. The United States arrives at its own at roughly nine times.
The comparison done properly
Comparing Ontario's combined rate to the American federal rate alone is not a fair comparison, because most American states levy income tax of their own. California adds up to 13.3 percent, New York City residents pay state and municipal tax on top of federal, and Massachusetts applies a surtax above one million dollars. Done honestly, the gap at the very top narrows considerably. A Californian at the top of the scale faces a combined rate in the low fifties, which is not meaningfully different from Ontario.
The gap that survives an honest comparison is the one in the middle. In 2025, a person earning $150,000 Canadian faced a higher marginal rate in every single Canadian province, ranging from 36.00 to 47.46 percent, than in every single American state, where the range ran from 24.00 to 33.30 percent. Not the highest province against the lowest state. Every province against every state. The Tax Foundation ranks Canada 27th out of 38 OECD countries on individual tax competitiveness.
This is the part of the argument that does not depend on sympathy for the wealthy. The person earning $150,000 in Mississauga is not rich. They are a hospital department head, a project manager, a senior developer. They are also precisely the demographic that receives a recruiter's call.
The evidence that they are actually leaving
Assertions about talent flight are easy to make and were, for years, weakly supported. The data has caught up.
Statistics Canada recorded 120,640 emigrants in calendar 2025, the highest annual figure in a dataset that runs back to 1952. Net emigration reached 65,706, breaking the previous record of 62,803 set in 1997 at the height of the original brain drain panic. The first quarter of 2026 set another record for a first quarter. This is the fourth consecutive year of increase.
TD Economics published a report in May 2026 titled Canada's Silent Brain Drain, finding skilled workers leaving at close to double pre-pandemic rates and noting that much of the flow travels on American work visas and therefore never appears in conventional emigration statistics at all. Among Canadian born students at top universities, exit rates at the top of the skill distribution run roughly double those at the bottom. Separate research cited in that report found that within twenty five years of arrival, 34 percent of immigrants to Canada holding doctorates had left the country, along with 32 percent of those with master's degrees and 24 percent of those with bachelor's degrees.
Canada is not merely failing to retain the people it educates. It is failing to retain the people it recruited specifically because they were educated.
Where the argument should be careful
Two honest qualifications, because an argument that ignores its own weaknesses is not worth making.
Permanent migration between the two countries is more balanced than the rhetoric suggests. Statistics Canada reported in 2025 that the annual number of Canadian born individuals obtaining American permanent residency fell roughly 30 percent between the late 2000s and the late 2010s, and that from 2021 to 2023 the United States admitted about 11,100 Canadian born permanent residents a year while Canada admitted about 10,100 American born ones. The flow that matters is temporary and visa based, and it is measured badly.
And on physicians specifically, the historical record cuts against the easy version of this story. A 2016 analysis of American Medical Association data found the outflow of Canadian medical graduates to the United States peaked in the 1990s and reversed by 2004. Whatever is happening to physician supply in Canada today, a simple exodus narrative does not carry the weight often placed on it.
Neither qualification touches the Bank of Canada finding, which is about the top of the income distribution rather than the average, and which remains the most serious piece of evidence in the file.
What should actually be done
The usual objection is that high earners ought to contribute more, and they should. Progressivity is not the problem. The problem is a rate schedule assembled piece by piece over twenty years, never reviewed as a whole, that now produces a twelve point cliff in the upper middle and reaches its ceiling at a level other countries treat as ordinary professional income.
The C.D. Howe Institute proposed a coherent version of the fix in March 2026: collapse the five federal brackets to three and cap Ontario's combined top rate at 46.53 percent. That is a specific, costed, mainstream proposal from an organisation nobody accuses of radicalism, and it deserves an answer rather than the silence it has received.
The minimum Ottawa should do is smaller and harder to refuse. The Department of Finance should be directed to publish effective marginal rate curves across the full income distribution, by province, inclusive of contributions and benefit phase outs, and to model the revenue effect of upper bracket reform with the behavioural and migration response included rather than assumed away. A static costing of a rate reduction counts the revenue forgone from those who stay. It does not count the revenue already forgone from those who left.
That is the calculation Canada has never actually run. Until it does, the country will keep congratulating itself on a tax system that looks progressive on paper while roughly four in ten of the people it was designed to tax have arranged to be somewhere else.