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What’s the best way to cut the tax burden for families in the middle?

How the Liberal tax cut compares to an alternate cut on the first tax bracket


 
Canada's Finance Minister Bill Morneau at a news conference in Ottawa, Canada, December 7, 2015. The new Canadian government's planned tax hike on the rich will bring in less money than forecast. A government document said the tax hike would bring in C$2.01 billion ($1.49 billion), while the cost of the tax cut would be C$3.44 billion ($2.55 billion). (Chris Wattie/Reuters)

Canada’s Finance Minister Bill Morneau at a news conference in Ottawa, Canada, December 7, 2015. The new Canadian government’s planned tax hike on the rich will bring in less money than forecast. A government document said the tax hike would bring in C$2.01 billion ($1.49 billion), while the cost of the tax cut would be C$3.44 billion ($2.55 billion). (Chris Wattie/Reuters)

Attention to the tax changes introduced this week by Finance Minister Bill Morneau has focused on his admission that they will cost $1.2 billion, rather than being revenue-neutral, as the Liberals had promised during the election campaign.

But there hasn’t been as much attention to Morneau’s reduction of the rate in the second tax bracket—income from about $45,000 to $90,00—from 22 per cent to 20.5 per cent. An exception is the detailed analysis done by David Macdonald, senior economist the Canadian Centre for Policy Alternatives, who here looks at three other ways the Liberal might have cut taxes.

Macdonald shows that had the government trimmed the first tax bracket—the rate on income up to about $45,000—from 15 per cent to 14.5 per cent, the tax savings for families in the middle of the income spectrum would, on average, have been bigger. He used the Statistics Canada’s reliable software, the Social Policy Simulation Database and Model, to test how the changes would affect families with different incomes.

We’ve created our own chart based on Macdonald’s work to compare how the tax savings from the Liberals’  cut to the second tax braket compare with what might have happened, had they opted to cut the first tax bracket:


 

What’s the best way to cut the tax burden for families in the middle?

  1. Unfortunately, a bunch of high-priced government help patting themselves on the back for saving average families a couple hundred bucks a year is like Lance Armstrong congratulating himself for riding on two wheels, or Elton John being excited about learning to play “Chopsticks.”
    When governments are resorting to convoluted efforts in order to claim to be champions of the “little guy” on a $200-300 annual tax saving, then we know the real goal is preserving the status quo at all costs.
    Can one honestly believe that there is any attempt to actually put taxpayers ahead of the various entrenched interests within government when the same people who will crow from the rooftops their dedication to protecting taxpayers are negotiating climate change deals that will extract thousands of dollars per year from Canadian families?
    Look, if someone wants to make the case that they’re really interested in looking out for taxpayers, then quit making noises about it and actually do something about it.
    Sit the head of CBC down and tell him he needs to come up with a plan that keeps the Ceeb on the air without a penny of tax dollars. That, or walk away with two weeks pay and we’ll hire someone who’s up to the challenge.
    I’m a pro-choice kind of guy, and that sounds like the kind of choices you give to the high-priced help. Make it work, or GTFOOD. Start there, and work your way down the line. Sit everyone down who makes $300K or better on the public dime, and tell them they’re taking a pay cut of 33%. If they don’t wish to take a pay cut, they can leave with two weeks severance. Aaaand, just keep on going down the line.
    33% cuts at the top of the scale, and work on down the line on a sliding scale so that every single employee sees a cut of no less than 10%. Everyone gets a choice. A cut or move on. If any one goes on strike, fire them.
    Take whole departments and shutter them, en masse. Ministries of language and culture are pure parasites. The federal ministry of health is a waste of time. Shut its doors. Health care is a provincial responsibility, as is education. Send all those people home with a handshake.
    Don’t stop until the federal budget is trimmed by 25%, then give Canadians a tax break across the board that reflects that.
    This idea that the government is somehow doing Canadians a tremendous favor by allowing them to keep enough of their own extra money per year to cover the cost of a nice evening out is beyond insulting. It’s like tossing a tray full of ice cubes out on to a slab of pavement and telling the kids to go lace up their skates.

  2. The media participated in the fraud on the Canadian electorate by NOT calling out Trudeau and the Liberals on this deceptive promise where most of the benefit goes to the upper middle class.

    Trudeau repeated this deception over and over during the election campaign, and the media repeated it, rather that point out that it was basically a lie.

    • But at least he got free babysitting now that he’s PM. (free to him i mean)

  3. A half point cut to the bottom rate would be pointless. The one and only thing Trudeau got right was cutting this bracket. There is no reason on earth why the second bracket was a full 7 points higher than the first. Cutting the bottom bracket again would have made the gap even larger. What is so magical about the $45,000 mark that requires the marginal tax rate to rise a full 7%, let alone 7.5%? The 22% bracket was exactly the bracket that needed cutting. This restores a bit of balance to the income tax system by making the increase slightly more gradual. And it needs to go further.

    Interestingly, it was this very same 22% bracket that Harper had promised to eliminate completely In the 2004 election (which he lost) creating a single 16% bracket up to the $64,000 mark (that’s where the second bracket ended back then). He was vilified by both the Liberals and the media for his “US-style tax cut”. In fact, Martin ran ads using those exact words. The media went through great pains to explain how all the benefits of this cut would go to those making over $32k. The Liberals campaign against this tax cut was so successful that in the next election, Harper scrapped income tax cuts promised a GST cut instead, along with a pile of boutique credits. Paul Wells details how they reached this decision in his book Right Side Up.

    Somehow, Trudeau was portrayed as a hero for the middle class by promising a piddling 1.5 point reduction to the same bracket Harper wanted to eliminate 11 years ago. Because it’s 2015 I guess.

    • Good point. In the end, it’s still all smoke and mirrors, though. Government is the single largest expense of any Canadian family, and the combined costs of three levels of government are at least 20% higher than they really should be.
      Worse, most Canadians know the reasons: pay that’s substantially too high for public sector workers, unnecessary programs that deliver no benefits to Canadians but make pols feel warm and fuzzy inside (Ministry of Heritage and Culture? Official Languages Commissioner? Really?), and plain old lack of restraint. Every level of government has grown at a rate that exceeds population growth and inflation for more than 40 years.
      Any fiscal discussion that fails to include plans for major cuts in expenditures and taxes is about as useful as talking about how brown and how smelly poop actually is.

    • You are wrong sir.

      Cutting the 2nd bracket means most of the benefits accrue to people in the 3rd bracket.

      Cutting the 1st bracket would mean a greater portion would accrue to people with income in the 2nd bracket, in the middle class.

      The way the tax cut was structured was an upper upper middle class tax cut. If it was the first bracket that would cut, it would have been more of a middle class tax cut.

      • You’re making the same argument they made against the 2004 Consrvative tax proposal. The fact remains the 22% bracket was the one that most needed cutting, and if anything, should have been cut more. We do not need an even larger marginal jump at the 45k level.

  4. Taxes are a burden. Labour is a movement. Business is a community.
    I’m collecting gerbil-speak. All contributions are gratefully accepted.

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