Tax Freedom Day exposed

[Mimas]

For years Canadians have been bombarded by conservatives with misinformation on how much tax we pay. The right-wing tells us that we pay the "highest taxes in the world" or some of the highest taxes in the world, when in fact our taxes are slightly below the average for developed counties. At the forefront of this PR campaign is the Fraser Institute, which every year makes a lot of noise celebrating "Tax Freedom Day" at the end of June and telling Canadians that we pay half our income in taxes.

Given that Canada's GDP is roughly $1,300 M and taxes collected at all three levels of government is roughly $400 M, dividing the second by the first gives a tax rate of roughly 30.8%. This would put "Tax Freedom Day" close to the end of April.

Also when taxes paid by Canadians to all three levels of government are taken into account, Canada has a roughly flat tax system running in the 30% to 33% range for all income levels. This would also put "Tax Freedom Day" at the end of April.

So you wonder, how does the Fraser Institute inflate our taxes by 60%? Well, here is the trick. Actually there are a lot of tricks employed by the Institute (such as using Average, not Median income in their calculations) but here is the biggest and most ridiculous one:

1) Take average income received by Canadian families (in 2003) and call it Cash Income= $58,782 per family.

2) Add to that all indirect income received by persons and all organizations (such as fringe benefits from employment and corporate retained earnings) in the country, add taxes and divide it equally among all families = $31,676 per family.

3) Add the two and call that Total Income Before Taxes= $90,458 per family.

So far so good. What this effectively does is distribute all income in the country among families.

4) Now take all taxes paid by persons and organizations to the three levels of government and divide them equally among Canadian families. Call that Total Taxes = $27,640.

This effectively distributes all taxes paid in the country among families.

5) Now divide Total Taxes by Total Income Before Taxes = 30.6%. So "Tax Freedom Day" is near the end of April according to the Fraser Institute's calculations. This is supported by what I said earlier.

Not so, says the Fraser Institute. The Institute takes Total Taxes and divides that by Cash Income = 47% and claims that "Tax Freedom Day" is at the end of June.

Now, this is obviously meant to trick people. Even a 10-year-old can see that taxes not paid by families are attributed to families but the corresponding income is not.

When asked why the Institute divides Total Taxes by Cash Income instead of by Total Income Before Taxes, the Institute says that it would be too difficult to explain to Canadians why Total Income Before Taxes is so high.

So effectively, Canadians are stupid. The Fraser Institute is so convinced that Canadians are truly retarded, that they try to cheat us in the most ridiculously obvious manner.

Well, how do you explain to Canadian families that they pay Corporate income taxes but Corporate retained earnings are not considered part of their income? It's like saying that my income is my income, but my taxes are my taxes plus the neighbour's taxes. Hmm, they don't even try. They just say that's the way it is and they make as much noise as possible in June to brainwash those of us who don't look at the details.

So when next year the Fraser Institute beats the drums that "Tax Freedom Day" is on June 28th, don't get that excited. It isn't true.

Income

Taxes

[Mimas]

What? No comments? You don't know simple arithmetic or don't want to admit that the right is lying about Canada's taxes being much higher than they actually are?

[Cameron]

A link would be nice. And I don't trust your arithmetic.

[Mimas]

A link would be nice. And I don't trust your arithmetic.

The tables above give the estimates but you have to purchase the publication from the Fraser Institute to get those

http://www.fraserinstitute.ca/shared/readm...v=pb&id=628.

[Renegade]

What is more relevant to me is my personal "Tax Freedom Day", not the average one that the Frasier Institute calculates.

For me the breakdown is approximately:

33% to income taxes, 4% to sales taxes, 5% to house and educaion taxes, 4% to CPP and EI.

Which bring the total take close to 50%. I'm sure there are other taxes I may have missed, but those are the big ones.

For me, it's not far off from the Frasier numbers. And yes, I think that amout is too high.

[Riverwind]

A link would be nice. And I don't trust your arithmetic.

Try this math:

Yearly

Income $60,000.00

Fed Tax $8,592.00

BC Tax $3,552.00

CPP $1,800.00

EI $1,128.00

Net $43,932.00

Rent $12,000.00

Food $6,000.00

Disposable $25,932.00

GST $1,555.92

PST $1,815.24

Total Txes $18,443.16

Percent 30.74%

Apr 22nd

The calculations are for a single person or family earning 60K/year in BC.

Whatever math the Frasier Institute uses it is deliberately deceptive and designed to push an particular political agenda rather than inform.

[Riverwind]

33% to income taxes, 4% to sales taxes, 5% to house and educaion taxes, 4% to CPP and EI.

You have to be earning 120K+/year to pay 33% of your income in tax. I suspect you have miscalculated by looking at your marginal rate rather than the real percentage of taxes that you pay.

[Mimas]

What is more relevant to me is my personal "Tax Freedom Day", not the average one that the Frasier Institute calculates.

For me the breakdown is approximately:

33% to income taxes, 5% to sales taxes, 6% to house and educaion taxes, 3% to CPP and EI.

Which bring the total take close to 50%. I'm sure there are other taxes I may have missed, but those are the big ones.

For me, it's not far off from the Frasier numbers. And yes, I think that amout is too high.

3% CPP and EI suggests to me that your income is around $65K. This means that your income tax rate cannot be 33%. At that level of income it would be around 25%. Also you are declaring that you will donate any CPP and EI benefits you receive in the future to the debt reduction fund or something.

This topic is not about your taxes in particular. It's about how the Fraser Institute inflates the tax bill of the average Canadian family.

Ok, now you've changed it to 4% CPP and EI, which means that your income is around $50K. That means your income taxes would be around 22%, not 33%.

[B. Max]

Well, how do you explain to Canadian families that they pay Corporate income taxes but Corporate retained earnings are not considered part of their income?

Where do you think corporate taxes come from, out of thin air. We are taxed to death in this country. It wasn't always that way. Socialist leaning governments that think they know how to spend your money better than you do put an end to that little by little. It shouldn't be called taxes, it should be theft.

[August1991]

Riverwind, you are going about this the wrong way. You ignore many taxes not levied on Canadians but nevertheless paid by Canadians. For example, you ignore property taxes, corporate taxes and many excise taxes on alcohol, gasoline, tobacco and cars.

Mimas has a point in that Canadians not only pay taxes but they also receive subsidies from the government. The Fraser Institute takes into account taxes but it ignores the subsidies.

There is a table here.

----

Understanding government taxes and spending is extremely complex moreso in a country like Canada with a federal system. I have argued elsewhere that government spending matters most and not the government's budgetary position.

For anyone who thinks that government spending is not too high, I suggest you take a look at this thread and the links provided.

[Cameron]

If you don't like the Fraser Institute, write a letter to them and complain.

[Riverwind]

Riverwind, you are going about this the wrong way. You ignore many taxes not levied on Canadians but nevertheless paid by Canadians. For example, you ignore property taxes, corporate taxes and many excise taxes on alcohol, gasoline, tobacco and cars.

I have a huge problem with the concept of a 'tax freedom day' because it presumes that people get nothing in return for their taxes. For example, a family living in the US would have to pay $1200-1500/month for a healthcare plan that has similar coverage to what we get in Canada as part of our tax bill. That is almost as much as their entire tax bill for a family earning 60K.

For anyone who thinks that government spending is not too high

For anyone who thinks that your taxes are too high then I suggest that you try calculating what it would cost you to buy the services that you want on the free market. I suspect most people would find that reducing gov't spending significantly would not save them any money in the end because they would have to pay a lot more for essential services from healthcare to roads.

[Mimas]

Riverwind, you are going about this the wrong way. You ignore many taxes not levied on Canadians but nevertheless paid by Canadians. For example, you ignore property taxes, corporate taxes and many excise taxes on alcohol, gasoline, tobacco and cars.

Mimas has a point in that Canadians not only pay taxes but they also receive subsidies from the government. The Fraser Institute takes into account taxes but it ignores the subsidies.

There is a table here.

----

Understanding government taxes and spending is extremely complex moreso in a country like Canada with a federal system. I have argued elsewhere that government spending matters most and not the government's budgetary position.

For anyone who thinks that government spending is not too high, I suggest you take a look at this thread and the links provided.

Actually, the "subsidies" received from the government are a very valid point by my point was different.

My point was that the FI go through the trouble of distributing all income that is not received by families and all taxes that are not paid by families to families and then divide total taxes by a portion of total income to derive the tax rate. It goes like:

Total Income = Family Income + Income of other entities per family

Total Taxes = Family Taxes + Taxes paid by other entities per family

Tax Rate = Total Taxes / Family Income.

This doesn't make any sense! You either do

Total Taxes/Total Income OR

Family Taxes/Family Income.

Total Taxes/Family Income is like comparing apples to fruit salad.

[Renegade]

33% to income taxes, 4% to sales taxes, 5% to house and educaion taxes, 4% to CPP and EI.

You have to be earning 120K+/year to pay 33% of your income in tax. I suspect you have miscalculated by looking at your marginal rate rather than the real percentage of taxes that you pay.

Yes, I'm probably overestimating, not because I'm using my marginal rate, but because:

1. I'm going by memory. I don't have the figures in front of me.

2. The 33% guestimate is based upon the tax which is being withheld, not the amount adjusted at year-end.

[geoffrey]

Personal taxes are just one of the many was the government takes money from you. I've heard some more suggestions here, like corporate taxes (yikes!! huge tax), sin taxes, ect. ect..

What about user fees (school fees or when you register your car) and health care premiums?

I disagree to call CPP a tax because it's actually pretty much coercive savings. It's a bad deal, but at least I'll get it sometime in my life. EI is a tax because it's a distrution of wealth, from hard working people, to non-working people.

The Frasier Institute does back up their claims. I don't know if it's 100% correct, I doubt it is. They don't seem to include maxing our your RRSP contributions or shipping some moola out of country. The Canadian tax system is so disgustingly complex that it's hard to contrive a real number that works for everyone.

I'd suggest an early May date myself. Do I think we are over taxed? Absolutely. Wealth transfers are priority to real infrastructure and economic spending, and that's a huge problem.

[Renegade]

Also you are declaring that you will donate any CPP and EI benefits you receive in the future to the debt reduction fund or something.

I'm not sure what you mean. Why would I return CPP or EI beneifts? You don't factor in the benefits for any of the other services my taxes pay for, so why shoudl CPP or EI be any different.

Ok, now you've changed it to 4% CPP and EI, which means that your income is around $50K. That means your income taxes would be around 22%, not 33%.

I'll grant you that my figures are not accurate, I just did it from the top of my head. However, even if you look at Riverwind's figures CPP + EI is $2928 on an income of $60,000. That works out to 5% of income

[Renegade]

For anyone who thinks that your taxes are too high then I suggest that you try calculating what it would cost you to buy the services that you want on the free market. I suspect most people would find that reducing gov't spending significantly would not save them any money in the end because they would have to pay a lot more for essential services from healthcare to roads.

Maybe, maybe not. The government spends on a lot of things which if we had a choice as individuals we may not buy. I wonder how much money the government actually spends on truly "essential" services, which an individual taxpayer would have to replace if not provided by the government.

[Canuck E Stan]

So when next year the Fraser Institute beats the drums that "Tax Freedom Day" is on June 28th, don't get that excited. It isn't true.

So the date is April and not June 28th according to your calculations, whoopie doo.

My bank account tells me I pay through the nose in taxes.I see my tax dollars being used and wasted for programs that don't do anything for me,my community,my province or my government.

The Liberals treated each grand surplus like it was it was a profit windfall, and something they were proud to achieve.Only problem was,it was on the backs of the working people, in the form of taxation.

The Fraser Institute date may mean something to you,but to me,

Tax Freedom Day,is the day I don't ever pay taxes again.....and that my friend,will be the day I'm dead.

[Mimas]

Well, how do you explain to Canadian families that they pay Corporate income taxes but Corporate retained earnings are not considered part of their income?

Where do you think corporate taxes come from, out of thin air. We are taxed to death in this country. It wasn't always that way. Socialist leaning governments that think they know how to spend your money better than you do put an end to that little by little. It shouldn't be called taxes, it should be theft.

Corporate income taxes apply to corporate income. Corporate income=Dividends paid out to shareholders + Retained earnings. If you distribute corporate taxes among families, then you have to distribute the retained earnings (which FI doesn't do). Dividends are already included in family income.

I haven't seen anyone dying due to taxes. Besides taxes come back to the taxpayers in the form of services. If you really want to not pay taxes, try moving to Rwanda or Niger or one of those wonderful places. Or at least visit for a week or two. There may be sewage running down the street but you won't be paying taxes.

[Mimas]

Also you are declaring that you will donate any CPP and EI benefits you receive in the future to the debt reduction fund or something.

I'm not sure what you mean. Why would I return CPP or EI beneifts? You don't factor in the benefits for any of the other services my taxes pay for, so why shoudl CPP or EI be any different.

Ok, now you've changed it to 4% CPP and EI, which means that your income is around $50K. That means your income taxes would be around 22%, not 33%.

I'll grant you that my figures are not accurate, I just did it from the top of my head. However, even if you look at Riverwind's figures CPP + EI is $2928 on an income of $60,000. That works out to 5% of income

Actually, EI = $729 and CPP=$1911 for total=$2640. That's 4.4%.

The thing here is that these are not really taxes. Paying CPP means that you will get a pension (so it's saving for retirement, like RRSPs) and EI is insurance on employment and you will get EI benefits if you lose your job. Of course, there are certain similarities to taxes but that's a whole other debate.

The main difference between CPP and EI and taxes is that you pay the same amount of taxes whether you get services or not. You may never go to the doctor or you can spend all your free time at his office, but you still pay the same. With CPP and EI, the benefits you get are directly related to how much you CPP and EI premiums you pay. It's like life insurance - you get the benefit only if and depending on the premium you pay. But you wouldn't say that life insurance is a tax, would you?

[Renegade]

Also you are declaring that you will donate any CPP and EI benefits you receive in the future to the debt reduction fund or something.

I'm not sure what you mean. Why would I return CPP or EI beneifts? You don't factor in the benefits for any of the other services my taxes pay for, so why shoudl CPP or EI be any different.

Ok, now you've changed it to 4% CPP and EI, which means that your income is around $50K. That means your income taxes would be around 22%, not 33%.

I'll grant you that my figures are not accurate, I just did it from the top of my head. However, even if you look at Riverwind's figures CPP + EI is $2928 on an income of $60,000. That works out to 5% of income

Actually, EI = $729 and CPP=$1911 for total=$2640. That's 4.4%.

The thing here is that these are not really taxes. Paying CPP means that you will get a pension (so it's saving for retirement, like RRSPs) and EI is insurance on employment and you will get EI benefits if you lose your job. Of course, there are certain similarities to taxes but that's a whole other debate.

The main difference between CPP and EI and taxes is that you pay the same amount of taxes whether you get services or not. You may never go to the doctor or you can spend all your free time at his office, but you still pay the same. With CPP and EI, the benefits you get are directly related to how much you CPP and EI premiums you pay. It's like life insurance - you get the benefit only if and depending on the premium you pay. But you wouldn't say that life insurance is a tax, would you?

For CPP it has some similarity to both a tax and to a savings plan, so I can go either way on it. It is like a savings plan in that I contribute to it and expect my contributions to be held "in trust" for me, and paid out with investment gains upon retirements. It is also like a tax in that the government unilaterally sets payment rates and payout rates and there doesn't necessarily need to be a relationship between the two. For example the government could decide, that by the time I retire, it doesn't have enough to pay out all retirees, and can unilaterally cut payment rates, or hike contributions as they did in the 90s.

As for EI, it is pretty much the same concept as health insurance. Even if I don't use the benefit, I still pay EI just as I do health insurance. And yes I do consider my tax contributrion to health insurance a tax, so why wouldn't I consider the same for EI?

BTW, the $729 figure for EI, is that the employee portion only or does it include the amount the employer contributes on my behalf?

[Riverwind]

Maybe, maybe not. The government spends on a lot of things which if we had a choice as individuals we may not buy. I wonder how much money the government actually spends on truly "essential" services, which an individual taxpayer would have to replace if not provided by the government.

I have friends who have had to purchase healthcare insurance in the US and the cost is in the $1200-$1500/month range for a family. I have also heard that the cost of to US employers is in a similar range. One half of the property taxes I pay goes to pay the RCMP and the Fire Department the other half goes to paying for roads and community buildings/parks. Private schools start at $1000/month (after deducting the gov't private school subsidy). Many seniors collect $500-1000/month in retirement benefits. That is a short list of benefits that already add up to at $2000/month which exceeds the direct tax bill of the majority of families in the country.

I agree that the gov't could save some money eliminating wasteful pork barrel projects but I seriously doubt the savings would be much more that 10%. IOW: taxes are not dumped into a pit an burned - a large percentage of the taxes we pay does come back in the form of essential services which we have to pay for no matter what. It is important to keep those facts in mind when asking whether we pay too much tax.

[Mimas]

Personal taxes are just one of the many was the government takes money from you. I've heard some more suggestions here, like corporate taxes (yikes!! huge tax), sin taxes, ect. ect..

What about user fees (school fees or when you register your car) and health care premiums?

I disagree to call CPP a tax because it's actually pretty much coercive savings. It's a bad deal, but at least I'll get it sometime in my life. EI is a tax because it's a distrution of wealth, from hard working people, to non-working people.

The Frasier Institute does back up their claims. I don't know if it's 100% correct, I doubt it is. They don't seem to include maxing our your RRSP contributions or shipping some moola out of country. The Canadian tax system is so disgustingly complex that it's hard to contrive a real number that works for everyone.

I'd suggest an early May date myself. Do I think we are over taxed? Absolutely. Wealth transfers are priority to real infrastructure and economic spending, and that's a huge problem.

geoffrey, total taxes=$400 M, GDP=$1,300 M. You ought to agree that taxes would be roughly 30%, not 47%.

Even without looking into the detailed calculation and realizing that they divide apples by the orange tree to get the tax rate, it's pretty obvious that "average Canadians pay half their income in taxes" is a case of misrepresentation and distorting reality.

Besides, wait till the baby boomers retire. That's when taxes will have to go up to 47%.

Do we get less in return than the taxes we pay? Of course. Between 15% and 20% of our tax dollars go to pay the interest on the debt our parents and grandparents piled up for us. But instead of doing the right thing and paying it down, the boomers want tax breaks (at least until they retire) so that we really are stuck with all of their debt.

[Renegade]

Maybe, maybe not. The government spends on a lot of things which if we had a choice as individuals we may not buy. I wonder how much money the government actually spends on truly "essential" services, which an individual taxpayer would have to replace if not provided by the government.

I have friends who have had to purchase healthcare insurance in the US and the cost is in the $1200-$1500/month range for a family. I have also heard that the cost of to US employers is in a similar range. One half of the property taxes I pay goes to pay the RCMP and the Fire Department the other half goes to paying for roads and community buildings/parks. Private schools start at $1000/month (after deducting the gov't private school subsidy). Many seniors collect $500-1000/month in retirement benefits. That is a short list of benefits that already add up to at $2000/month which exceeds the direct tax bill of the majority of families in the country.

I agree that the gov't could save some money eliminating wasteful pork barrel projects but I seriously doubt the savings would be much more that 10%. IOW: taxes are not dumped into a pit an burned - a large percentage of the taxes we pay does come back in the form of essential services which we have to pay for no matter what. It is important to keep those facts in mind when asking whether we pay too much tax.

I grant you that there are many essential services. I also agree that some services like healthcare are provided more efficiently by the government. However, I may be single and don't need to purchase schooling or healthcare for an entire family. I may not be a senior and thus do not collect $1000/month in retirement benefits. In short I'm skeptical how many "essential" services would truly been replaced if taxpayers had the option.

[Wilber]

The thing that bothers me about things like EI is it is not optional. I have a choice when it comes to buying other types of in insurance but not that one. Never mind, I just retired so I no longer pay into it but then I was fortunate enough never to collect it either.

The thing that bothers me about CPP is that it is used for other purposes (disability benefits) and the benefit is not really proportional to what you put in. A person can pay the maximum into it for 30 years and only get a couple of hundred bucks a month more than someone who contributed far less for 15 years.