We don’t all have the same incomes; we don’t all pay the same taxes
By Dougald Lamont, for CBC News
The Fraser Institute and the Canadian Taxpayers’ Federation (CTF) regularly crank out media-friendly, anxiety-inducing reports about how much government debt we all owe, how much tax we all pay, or how much “economic freedom” we lack.
They are often misleading and frequently totally wrong, for one basic reason: Canadians aren’t economically equal.
It is a matter of basic math: we don’t all have the same incomes; we don’t all pay the same taxes. Dividing up debt equally among individual Canadians is an accounting fiction that has nothing to do with real life.
The Fraser Institute recently reported the average Canadian family pays 42 per cent of their income in taxes. They reached this figure by lumping in corporate taxes and oil & gas royalties with the family tax bill.
The claim is that these are “hidden taxes,” implying that if they were cut, the savings would be passed along as higher wages or lower prices. This runs counter to both evidence and a corporation’s duty to maximize returns for shareholders, not employees or customers.
If lowering corporate taxes translated into better wages or lower prices, we would expect to see that reflected in the economy. Between 2000 and today, the federal corporate tax rate was cut in half, from 30 per cent to 15 per cent. The Federal Government is the smallest it’s been compared to the whole economy in decades — about 15 per cent of GDP.
Have these cuts delivered raises for employees? They have not. Incomes for the majority of Canadians have stagnated since the late 1970s, while almost of all of the benefits of growth have gone to the top.
Canada’s personal taxes are also much lower than they used to be. In the 1950s and 60s, the top rate for individuals was around 90 per cent in Canada, the United Kingdom and the United States. In 1970, the Trudeau Liberals overhauled Canada’s tax code and reduced the top rate by half, to about 45 per cent. It has been cut further, as have all the tax brackets. The top rate for individuals is now 33 per cent.
According to Statistics Canada, between 1999 and 2012 the net worth of the top 20 per cent of Canadians nearly doubled in value, from $2.9-trillion to $5.44-trillion. As a group, they owned 67 per cent of all assets in the country. During the same period, the bottom 20 per cent — who were $4.1-billion in the hole in 1999 — lost a further $6.7-billion: their cumulative net worth in 2012 was negative $10.8-billion.
There are also huge differences in the concentration of income. In 2012, the top 10 per cent of Albertans were making 50 per cent of all income in that province. Canada also has some of the highest CEO-worker inequality in the world, with chief executives making 300 times what an average worker in their company does.
While tax cuts are not the reason wages have stalled at 1980s levels — there are many other factors, from technology and globalization to trickle-down economics — they have amplified and driven inequality, because the people at the top keep more of their gains.
- Which part of Canada paid the most tax in 2015?
- It’s ‘tax freedom day’: now start working for yourself
To make up for reduced income taxes, Canadian governments have offloaded costs onto citizens through user fees (tuition, health care premiums) or raised revenue with regressive consumption taxes, like the GST & PST. All affect people with low and middle incomes more, especially any person or family who spends everything they earn out of necessity.
You can contribute to both the economy and society without paying taxes. Children and students don’t pay taxes, but they will eventually. Seniors may pay less or nothing after a lifetime of work. Millions of Canadians who pay low or no taxes work in jobs where their low wages help ensure the company they work for is profitable and that executives are well-paid.
The Fraser Institute and CTF act as if governments just set tax money on fire, when all of it goes straight back into the economy. Twenty-eight per cent of the Federal budget is payments to individuals, like public pensions for seniors and the Canada Child Benefit.
People with high incomes and greater wealth pay more in taxes in part because they benefit most from the economy and the protections government has to offer: they have the most to lose.
We pay taxes and in return we get roads, clean water, schools, health care, and a court system that enforces the rule of law, like contracts and property rights. Those things don’t reduce our standard of living, they make prosperity possible. Countries (and areas of Canada) without all of these things aren’t the richest parts of the world, they are the poorest.
Inequality is a fact of life in Canada. Whether we want to change it or not, our public discourse should reflect it, and the CTF and Fraser Institute should not set out to create reports based on denying it.
Dougald Lamont is a lecturer in Government-Business Relations in Canada at the University of Winnipeg.