Do we pay more taxes in Canada then we should?
As the year moves toward the end, and before we get into a frenzy about Christmas shopping many of us will be thinking about our Tax situation. The Canadian news media is always awash with coverage of studies purporting to show the growing burden of taxation, reinforcing a narrative that Canadians are paying high tax rates and providing, they hope, a justification for tax cuts. A study (THE BRASS TAX Busting myths about overtaxed Canadians) by done the Broadbent Institute investigates whether these claims and the popular anti-tax narrative they help underpin, hold up to statistical scrutiny. The bottom line is they don’t. The following is from the Executive study of this report.
The Brass Tax looked at key publications on taxation covered extensively by Canadian news media every year: The Fraser Institute’s annual Tax Freedom Day. That report claims “average” Canadian families pay a tax rate of over 40%. The Brass Tax study also looked at the trend highlighted by the Macdonald-Laurier Institute (MLI) showing that most affluent Canadians are paying a larger share of income taxes than they were in the past.
Employing more accurate statistical methods, the Brass Tax found compelling evidence that the Fraser Institute and MLI findings are problematic and do not provide an accurate depiction of typical Canadian tax rates.
The study’s key findings of the Brass Tax Study are:
• The effective tax rate including income, payroll, and commodity taxes for the typical Canadian family is 24%, a little over half of the 40% plus claimed by the Fraser Institute.
• The typical effective tax rate for a Canadian family, for income tax only, is 11%.
• The typical working Canadian individual aged 25 to 54 pays a rate of approximately 14% in income taxes.
• Only 20% of working Canadians pay more than 20% of their income as income taxes.
• The typical income tax rate for Canadians in the middle of the income distribution is 10% to 19%. Only 2% of working Canadians pay more than 30%.
• For Canadians that earn more than $250,000, their average income tax rate was 29%.
• The share of income tax paid by the top 1%, has increased from 12% to 20% over the last 32 years. This is due to their share of all income increasing from 7% to 10% — a 45%jump.
• Their income tax rate has, in fact, been falling since 2000.
Finally, this study finds that Canada’s tax revenue relative to GDP is trending downward and is substantially lower than that of most OECD countries — Canada ranks 25th of 35 member countries.
Much of the media coverage of taxation gives Canadians the impression that they are paying far more in taxes then the really do.
Taken together, this study’s findings undermine the narrative of an undue and growing tax burden for typical Canadians and provide a cautionary tale for news media that cover these misleading tax studies and their calls for further tax cuts.