Canadians’ total tax burden has increased 1,351 percent since 1961

Tax bill accounts for more of the family budget than shelter, food, and clothing combined

Contacts:

Jason Clemens, Director of Fiscal Studies
The Fraser Institute, Tel: (604) 714-4544
Email: jasonc@fraserinstitute.ca

Joel Emes, Senior Research Economist
The Fraser Institute, Tel: (604) 714-4546
Email: joele@fraserinstitute.ca

Release date: 13 June 2001

Tax Facts 12 is the latest edition of a biennial study which looks at how the average Canadian tax bill has changed since 1961. Between 1961 and 2000, for example, the average Canadian family's tax bill rose from 33.5 percent to 47.5 percent of its income.

"This book provides Canadians with a basic tool kit of knowledge about taxation in order to enhance rational debate about this issue," says Jason Clemens, director of fiscal studies at The Fraser Institute.

The Canadian Consumer Tax Index

Tax Facts 12 updates The Fraser Institute's Canadian Consumer Tax Index (CCTI), which tracks the tax bill of the average Canadian family from 1961 (see Figure 1). Back then, the average family had an income of $5,000 and paid a tax bill of $1,675 (33.5%). In 2000, the average family earned $51,174 and paid $24,309 (47.5%) in federal, provincial, and municipal direct and hidden taxes.

The Index also shows that taxes have risen much more sharply than spending on food, clothing, and shelter. The tax bill now accounts for more of the average Canadian's budget than shelter, food and clothing combined, a marked reversal from the situation in 1961.

Figure 1 - Taxes and basic expenditures* of the average Canadian family, 1961-2000

Source: Tax Facts 12, table 4.4. Note: Data for some years have been interpolated; all years shown have full data. *All expenditure items include indirect taxes.

Who Pays Taxes?

The fairness of the Canadian tax system is a frequent topic of discussion. Tax Facts 12 looks at the distribution of taxes and income by decile (each of the ten deciles consist of 10 percent of all families).

For example, the top three deciles represent the 30 percent of families with the highest incomes. In 2000, families with incomes in the top 30 percent (those earning $63,209 or more) earned 59.4 percent of total income but paid 65.7 percent of all taxes. Families in the lowest three deciles, on the other hand, earned 8.1 percent of all income but paid 4.3 percent of all taxes.

The Not-So-Obvious Tax Bill

Many Canadians know that income taxes are the single largest tax they pay. Many do not know that income tax represents less than half of their total tax bill. In 2000, for example, the average family paid income taxes of $8,071. Other taxes, ranging from sales to motor vehicle, to property taxes, amounted to $16,238. These additional taxes account for over two-thirds of the total tax bill of the average Canadian family.

Impact of the Corporate Tax

Another surprising fact is that the elderly bear a disproportionate fraction of taxes levied on corporations in Canada. Canadians 64 years of age and older paid 51.4 percent of the corporate tax bill. The reason for this anomaly is that the elderly receive a significant portion of their incomes from private sector pensions, which are invested in corporations. Therefore taxes levied on corporations, often seen by the public as a way to make sure the "rich" pay their fair share, actually represent a significant burden to pension income recipients.

The Rags-to-Riches Tax Burden

The book also demonstrates how the Canadian tax system penalizes someone who works their way up the income ladder during their career. Tax Facts 12 looks at one hypothetical situation— a Canadian whose cash income grew from half of the average in 1961 to twice the average in 2000. In other words, the example tracks someone who started with a modest income but ended with a relatively high income.

The income for this fictitious earner grew from $2,750 in 1961 to $100,358 in 2000, resulting in a tax bill of $960 in taxes in 1961 and $53,047 in 2000. By way of contrast, while this individual’s cash income grew by 3,549 percent between 1961 and 2000, his or her taxes paid increased by a whopping 5,426 percent.

Income Mobility

In addition to the usual detailed information on the percentage of total income earned by each income group in a given year, Tax Facts 12 includes a discussion of how family incomes change over time (income mobility), specifically over two and five year periods.

Income mobility data shows that, contrary to some opinions, there is not a permanent underclass stuck in lower incomes in Canada. Evidence from the five year study shows that of the families who were originally in the bottom two income groups, 45% had moved up by at least one group within five years.

"Tax Facts is a unique compilation of information about the cost of government—it does not discuss the benefits that government spending creates. Other Fraser Institute studies provide that information. The message for Canadians from this edition of Tax Facts is that even with government restraint, taxation is the most significant economic aspect of our lives," says Clemens.

Established in 1974, The Fraser Institute is an independent public policy organization based in Vancouver, with offices in Calgary and Toronto.