What Kind of Burden Taxes Are

web posted June 1997

Canadian tax bill accounts for more of family budget than shelter, food and clothing combined...

The total tax bill of the average Canadian family has increased by 1,168 percent since 1961, according to a book released recently by the Fraser Institute.

Tax Facts 10 is the latest edition of a biennial study which examines how the average tax bill has changed since 1961. Between 1961 and 1996, for example, the average Canadian family's tax bill rose from 33 percent to 48 percent of its income.

"This book does not attempt to look at the benefits that Canadians receive from government in return for their taxes," said Michael Walker, co-author of Tax Facts 10 and executive director of The Fraser Institute, "nor does it say whether we get our money's worth. Rather, it looks at the price that is paid for a product — government."

The Consumer Tax Index

This edition of Tax Facts includes the 20th anniversary edition of the Fraser Institute's Consumer Tax Index, which tracks the tax bill of the average Canadian family from 1961. Then, the average family had an income of $5,000 and paid a tax bill of $1,675. In 1996 the average family will have earned $46,139 and pay $21,242 in federal, provincial, and municipal direct and hidden taxes. This index shows that the tax bill of the average family has increased by 1,168 percent since 1961. The Balanced Budget Tax Index (which includes federal and provincial deficits as current taxation) has increased by 1,322 percent.

Figures 1, 2, and table 3 show 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 complete reversal of the situation in 1961.

Who Pays Taxes?

Fairness of the Canadian tax system is often a hot topic for discussion. Tax Facts 10 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 lower three deciles represent the 30 percent of families with the lowest incomes. In 1996, families with incomes in the top 30 percent (those earning $59,260 or more) will pay 62.5 percent of all taxes levied and will receive 56.8 percent of total income earned.

The Not-So-Obvious Tax Bill

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 1996, for example, the average family paid income taxes of $7,938. Other taxes, ranging from sales to motor vehicle to property taxes, amounted to $13,304. In other words, taxes other than those levied on income account for over 60 percent of the total tax bill of the average Canadian family.

Balanced Budget Tax Rate

The federal government and many provincial governments have made considerable progress in eliminating deficit financing in Canada. Still, deficit financing has allowed governments to increase expenditures while letting the current tax rate fall below what it would have to be to fully pay for current spending. The Balanced Budget Tax Rate is calculated on the assumption of government paying for all current spending with current taxation. For each year of analysis, the calculations included in the book show what the tax rate would have been had all levels of government balanced their budgets in that year. In 1996 the average Canadian family would have to pay 5.6 percent more of their income than they actually paid to wipe out the deficits incurred by the various levels of government.

Impact of the Corporate Tax

The elderly bear a disproportionate fraction of taxes levied on corporations in Canada. Canadians 65 and over paid 58 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. Taxes levied on corporations may be a popular way to "make sure the rich pay their fair share", but the bulk of corporate taxes actually burden pension income recipients.

The Rags-to-Riches Tax Burden

Tax Facts 10 also looks at several hypothetical situations, including a Canadian whose cash income grew from half of the average in 1961 to twice the average in 1996. The income for this "Horatio Alger" grew from $2,750 in 1961 to $92,648 in 1996. The hypothetical income earner paid $960 in taxes in 1961 and $50,741 in 1996. While cash income grew by 3,269 percent between 1961 and 1996, taxes paid increased by 5,186 percent.

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