Ten years of tax cuts: a household’s perspective
I did my taxes yesterday and once again was surprised to see how low my family’s income taxes have gone. In 2010, my wife and I paid a combined 13.7% of our income in federal and provincial income tax. Canadian modesty does not permit me to disclose the exact amount of income, but it was under six figures, and about in the eighth decile for household income. With that income I consider us fabulously well-off but we make a lot less than most two-earner professional families, and less than many single-earner professionals (we call it the NGO discount at the office).
I figure 13.7% is a pretty good deal, given what we get back in services and the privilege of living in a great part of the world. Yes, there are other taxes too, but add ’em all up and it is still a good deal. Anyone who believes the Fraser Institute line that we pay half our income in taxes really ought to do this math themselves, and they see that they do not come close.
Because I’m geeky like that, I keep a spreadsheet of our income and taxes going back more than a decade. Looking at it makes for some very interesting comparisons, due to the growing federal and provincial tax cuts since 2001. In 1999 and 2000, we made less money so it is not a total apples-to-apples comparison, but our 2010 income at the average 99/00 tax rate equals more than $7,600 a year in income tax cuts.
That’s a huge amount of money, and I’d happily pay more in income taxes if it meant we had a national early learning and child care program, and a concerted anti-poverty plan. Wecould easily have a Canada without poverty, a Canada that acted on climate change, a Canada that provided better opportunities for children and youth. But we choose not to have those things.
As for this election, income splitting would only sweeten the pot for us, as I made much more than my spouse. We’d get back another couple thousand dollars in tax cuts that we did not ask for. Which typifies the past decade: people like me have benefited from tax cuts (and don’t even get me started on the massive gains accruing to the truly rich and super-rich), but those who need help have been given the shaft.
I remember seeing Mike Harris on the news telling “Days of Action†protestors that he would cut their taxes too.
Marc, I agree that 13.7% seems like a sweet deal. I’m guessing that you live in B.C. The picture is less rosy in Ontario, where the top marginal rate is still about 47% and has been for the last decade and a half, and where we have had an Ontario Health Premium imposed, HST imposed, and electricity rates more than doubled since 2003. You might not find a big constituency for higher taxes in Ontario.
Great analysis, Marc. As a moderately-well-paid single working professional in Ontario, I also paid 13.7% of my income in taxes last year, despite the Ontario Health Premium. My cost of living didn’t increase in any way from the HST that wasn’t covered by the increase in the sales tax rebates (great analysis here). And yes, the cost of electricity has more than doubled since our distribution network failed completely in 2003, coming closer to market rates, but we have much more clean energy capacity since then, and I’m ok with paying more for that.
Mr. Lee, your discussion begs the question: if you like paying taxes so much — that is, giving your hard earned money away for idealized good purposes — then why not voluntarily donate your income to charities? Donate until your average rate hits 20%, 30%, 40% or whatever your generous heart prefers. Some families simply aren’t fortunate enough to have this flexibility to give away their money. They have bills to pay, shelter to provide, and mouths to feed. Mandating such give aways smells of elitism. And you don’t even touch on whether the forced give aways are productively spent. You just assume this — quite the stretch. You also ignore a host of other taxes levied on families. We don’t just pay fed-prov personal income taxes. We pay sales taxes, fuel taxes, property taxes, fees, capital taxes, etc. What’s your average rate with all these — much higher 13.7%! If you’re unhappy with your low average personal income tax bill, that’s sad. But please don’t push for additional taxes on everyone else. That’s irresponsible.
Signed,
Overtaxed.
rcp, you are right that BC has the lowest income taxes (Alberta beats us at some point, but not until much higher income). But I’m not near the top MTR, but in BC that has not been cut (amazingly), so the top MTR is a combined 43.7%, same as in 2000 (above $100K threshold for BC).
Overtaxed, the point about taxes is that we all pay and we all benefit. With a progressive income tax structure, higher income folks pay more, and lower income folks benefit from better public services more. Again, it is a choice.
That said, our charitable contributions are up a lot to help clean up the mess that is not be addressed by government.
I just did my taxes too. Not griping but I’m paying more like one third of taxable income and my partner even more. Which goes to show that we are relatively pretty well off and that the PIT system is still pretty progressive in terms of taxation of earnings – albeit that it taxes capital income very lightly.
“Overtaxed” proposes to replace taxation with contribution to charity? Yeah, allowing free ridership is always such an effective way to create public goods . . . not!
And of course, the charge of elitism against someone pushing for a more progressive tax system . . . is that genuine misunderstanding or wilful ignorance? To go back to first principles momentarily, a “progressive” tax system is one in which the wealthy/high income pay more, the poor/low income pay less. Our tax system is much less progressive than it used to be (if still effectively progressive at all after various loopholes and Andrew Jackson’s point about capital income are taken into account), and by an amazing coincidence the highest income percentiles get a much bigger slice of the pie than they used to, while poverty has increased. Doing things more the way we used to when the poor were less poor (and economic growth was on average more robust) would indeed be a positive move.
Purple Library wrote “by an amazing coincidence the highest income percentiles get a much bigger slice of the pie than they used to, while poverty has increased.”
These statements are true, but I doubt it’s because of unspecified loopholes in our tax system (if you can show me these loopholes, I can probably make you a rich man btw). The rich pay a huge proportion of the income taxes collected in this country, and, in Ontario at least, the top marginal rate for individuals hasn’t budged in at least ten years.
(Corporate tax rates have dropped, but that’s a good thing for the pension plans for working Canadians that invest in corporate securities, isn’t it?)
Something is off here. To pay 13.7%, even in BC, would mean a taxable income of just $35,000 a year. That’s not eighth-decile, it’s about the median.
Also, you’re not counting HST, property taxes, payroll taxes, etc.
tyronen, not sure how you are doing those calculations … mine was for household income, and calculated income tax as a percentage of total income not taxable income. I contributed to RRSPs but taxable income was still much higher than $35 K. Are you counting tax credits in your calculation? And household median income is around $60K. So your math is wrong on several counts.
Overtaxed, I don’t believe in charities, nor do I give any money to them, unless they were completely voluntary (e.g. no paid staff) and not replacing public services. The head of the food banks make enough in many communities to be counted among the Sunshine Club, but because their funding is not from the public purse, they don’t have to report.
Advocating or pushing the charitable model results in prejudice and local unfairness. If you fell on hard times, do you want your neighbours who are doing well and don’t believe your plight is real making the decision whether you get help or not? I say NOT!!! By the way, some food banks have been forced to close as a result of too much demand and not enough people donating, and from the quality of many of these donations, out of date food (mostly starchy and highly processed food) is not good for you anyways.
John Loukidelis, there are lots of different loopholes for lots of different kinds of rich. But the classics tend to be
–ability to rely more on investment income than wage income. Note that not only is one only taxed on half of dividend income, but there is a “dividend tax credit” on top of that. There are other deductions for other kinds of investment income.
–Because people with lower income generally spend about all of what they make on basics and minor luxuries (going to the movies or whatever), there is little left over to put into the various tax shelters theoretically available to all. Rich people can and do put loads of money into RRSPs and the various other newfangled deferred-tax investment schemes. Poor and middle class people mostly don’t, or only a little bit.
–Rich people may own a business. If so, they can pull all kinds of stuff, starting with simply using the company’s money on their own behalf (company cars, “business trips” aka vacation, etc.) and subtracting that spending from the company’s profits.
–Rich people can play around with borrowing money for investment purposes and declaring the costs involved as an expense.
–Rich people, with or without a business, often have sources of income which allow them to play games in terms of time, deferring income and/or expenses and balancing them off against one another to useful effect.
–Rich people tend to employ accountants who know way more about how to fudge around than I do, not being rich myself.
It’s true that the argument is even stronger for corporations (General Electric in the US pays no tax at all). But that doesn’t mean rich individuals don’t get no loopholes. And incidentally, in terms of corporate taxation the pension plan thing is worthless compared to the loss of tax revenues. We can double the CPP for chump change compared to what we’d get by putting back the corporate contribution to what it used to be.
Purple Library Guy wrote: “John Loukidelis, there are lots of different loopholes for lots of different kinds of rich. But the classics tend to be …”
I suspect I’m one of those “accountants” to whom you are referring. Trust me that the “loopholes” you think exist don’t. The numbers, compiled by CRA, bear this out as far as income taxes are concerned anyway.
The dividend tax credit is a bad example of a “shelter”. It is true that certain dividends are taxed at about 32% (after taking into account the credit) rather than the 46% applicable to salary at the top rate, but the credit exists to take into account taxes paid at the corporate level. For a private corporation, the tax paid by the corporation and its shareholder on a dollar of income earned in Ontario ends up being something like 45%. (One problem with the credit is that it’s available for a dollar of dividends even if the corporation didn’t pay tax on that dollar. Some have suggested that a better system would exempt dividends from tax but only if the full corporate tax has been paid on the income from which the dividend is declared. I think Australia has something like that system in place.)
RSPs are a preference, but they are permitted by legislation. They are not a “loophole” any more than register pension plans for teachers and steelworkers are a “loophole.” And the tax preference given to the latter are significantly more generous.
Finally, some business owners do play fast and loose with the rules in the Income Tax Act, but they do so at their peril. If they get caught, the penalties can be severe. Cheating on taxes isn’t taking advantage of a “loophole”. It’s breaking the law, and it can mean jail time!
I would argue that the income tax in Canada is progressive, and the proportion of such taxes paid by the rich supports my argument (I can try to track down those figures for you if you are interested).
You might respond that the tax system as a whole has become less progressive, and I might have to concede that point. See http://goo.gl/n6gOd. But see also http://goo.gl/CVjRB.
As to whether you’re one of those accountants, you know better than I. There are accountants and accountants; many just keep track of things, some are Arthur Andersen. If you’re one of those accountants, then obviously I’m not going to trust you.
In the present case, I’d trust you more if you were arguing substance more and semantics less. What you define as a “loophole” and what you define as “not a loophole” has little bearing on whether taxation ends up progressive or not. Much like laws about sleeping under bridges, many tax measures which might purport to be majestically equal, in effect allow the rich, but not the poor, to exempt big chunks of income from taxation. This also often ends up with the income redefined as not being income at all, which gives the wealthy the best of both worlds–they get the money but since much of it is officially not there, they appear to pay a healthy tax level on the money that is actually admitted to exist.
I notice that in your comment about the dividend tax credit, you omit the more basic point that you get to divide that income in half before you even start taxing it. So, half of dividend income pays no tax at all (and indeed, for tax purposes is effectively deemed not to exist). I’d be happy to divide my wages in half before paying tax on them.
@ PLG, I think you have dividends and capital gains mixed up. The 50% applies to capital gains, not to dividends.