Tax Burden Up 1,286 Percent Since 1961

The total tax bill of the average Canadian family has increased by 1,286 percent since 1961, according to Tax Facts 11, the latest edition of a Fraser Institute biennial study which looks at how the average Canadian tax bill has changed since 1961 and how it is currently structured.

Tax Facts 11 also includes a non-technical do-it-yourself manual for taxpayers to estimate how much tax they pay, and an update to the Canadian Consumer Tax Index, which measures changes in the price that Canadians pay for government. The purpose of the book is to provide a basic tool kit of knowledge about taxation in Canada in order to enhance the opportunity for rational debate about taxation issues.

Some of the highlights of the book are as follows.

The marriage penalty

While the so-called marriage penalty has recently received significant attention, The Fraser Institute has been calculating it since 1976. The fundamental point is that families pay different tax bills depending on who earns the income. If, for example, a childless couple who are both working have the same income—say $25,000 per year—they pay taxes of about $8,452 when they file as individuals. If their total income of $50,000 were earned by only one of them, their tax bill would be around $12,356, a difference of $3,904. In other words, a dual-income family pays a gross tax rate of 16.9 percent, while a single income family is hit with a higher rate of 24.7 percent.

The Canadian Consumer Tax Index

Tax Facts 11 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. In 1998, the average family earned $49,996 and paid $23,218 in federal, provincial, and municipal direct and hidden taxes. According to the CCTI, the tax bill of the average family has increased by 1,286 percent since 1961.

The Index also shows that the tax index has risen much more sharply than Statistics Canada’s food, clothing, and shelter price indices. The tax bill now accounts for more of the average Canadian’s budget than shelter, food, and clothing combined—a marked reversal of the situation in 1961.

Who pays taxes?

The fairness of the Canadian tax system is a frequent topic of discussion. Tax Facts 11 looks at the distribution of taxes and income by decile (each of the 10 deciles consists of 10 percent of all families). For example, the lowest three deciles represent the 30 percent of families with the lowest incomes. In 1998, families with incomes in the top 30 percent (those earning $60,113 or more) paid 64 percent of all taxes levied and earned 57.4 percent of total income .

The not-so-obvious
tax bill

Many Canadians know that income taxes are the single largest tax they pay. Many do not know that the income tax represents less than half of their total tax bill. In 1998, for example, the average family paid income taxes of $8,466. Other taxes, ranging from sales, to motor vehicle, to property taxes, amounted to $14,752. In other words, these additional taxes account for over 63 percent 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 aged 65 and over paid 48.2 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. These pensions are generally given over to pension fund managers and 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 11 looks at several hypothetical situations—including a Canadian whose cash income grew from half of the average in 1961 to twice the average in 1998.

The income for this fictitious earner grew from $2,750 in 1961 to $99,990 in 1998, resulting in a tax bill of $960 in 1961 and $50,630 in 1998. By way of contrast, while this individual’s cash income grew by 3,536 percent between 1961 and 1998, his taxes paid increased by a whopping 5,174 percent.

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.