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A tax cut for all Canadians

By Walter Robinson
web posted June 23, 2003

In February 2000, the Canadian Taxpayer Federation's three-year campaign to end bracket creep -- the non-indexation of tax brackets -- was completed with the restoration of full-indexation announced in the federal budget. It meant, and still does, that Canadians saved some $20.7 billion on their federal income taxes that they otherwise would have paid between 2000 and 2004.

This campaign represented the ideal combination of good fiscal policy and great social policy. Ending bracket creep benefited all Canadian taxpayers but there was no doubt it was particularly help for lower and middle-income earners as well as those on fixed incomes.

The next bracket creep-like opportunity is now upon us: it's time to dramatically raise both the basic personal exemption -- hereafter called the BPE -- (presently at $7,756) and spousal exemption (presently at $6,586) to $15,000 by 2008.

Why $15,000 you may ask? Simply stated, $15,000 is roughly the average amount earned (before taxes) by a minimum wage employee. Why do we tax these people who are just entering the workforce, considered working poor, or students just looking to earn a few extra bucks to make ends meet? The importance of this question becomes self-evident when one considers that we recycle a good deal of the taxes paid by minimum wage workers back to them in the form of GST credits and other tax benefit schemes. It truly is a make work project for tax collectors in Ottawa.

Here's a novel idea. Why not simply raise the BPE and leave more -- if not all -- of this money on their paycheques in the first place so low-wage earners can have the dignity of better providing for their families on a daily, weekly and monthly basis?

Indeed, this issue was raised in the CTF 2003 pre-budget submission before the House of Commons Finance Committee during its pre-budget hearings last November.

Over 83 per cent of Canadian tax filers (all 22 million of us) make $50,000 or less. And a 97 per cent of Canadians make less than $100,000. It bears repeating that raising the BPE is a tax cut for all Canadians.

CTF calculations peg the maximum cost of raising the BPE to $8,000 at $602 million and if the spousal exemption (currently at $6,586) is also hiked to $8,000, the total impact would equate to $1.3 billion. A move to hike the BPE to $10,000 would cost $5.5 billion and combined with an equivalent increase in the spousal exemption would result in a $7.2 billion impact -- removing almost 588,000 Canadians from the tax rolls.

Getting to the target BPE amount of $15,000 would represent a $17.8 billion maximum impact on the public treasury or a $22 billion hit (read: tax cut) if the spousal exemption is increased to $15,000 over the same period as well. This would permanently remove over 2.1 million Canadians from the tax rolls.

Spread over five years, it would be relatively easy to allocate $4.4 billion annually to bump the BPE to $15,000. And Ottawa has the capacity to do this as John Manley's last budget predicted $70 billion in over-taxation surpluses through to 2007.

From a fiscal perspective this is wholly affordable. From a social justice perspective, providing tax relief for all Canadians but most specifically lower-income Canadians is very compelling.

The Bush tax cut proposals from January 2003 ensure that an American family of four earning $40,000 or less will pay no federal income tax. Today, a similar Canadian family starts to pay taxes at $27,000. Raising our basic personal and spousal exemption is really not a question of choice, it's an absolute necessity. It should be Paul Martin's first budget priority in 2004. After all, it is a tax cut for all Canadians.

Walter Robinson is the Federal Director of the Canadian Taxpayers Federation.

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