The truth about Trudeau’s tax cuts

How Trudeau’s plan takes from the rich and gives to the almost-as-rich

(Ryan Remiorz/CP)

(Ryan Remiorz/CP)

Prime Minister Justin Trudeau has lots of election promises to keep, but none more pressing than his pledges to cut taxes for the middle class and hike them for the rich. The closely linked commitments featured in almost every Trudeau campaign speech, and probably helped him pull votes from both his main adversaries. Some former Conservative supporters would, naturally, have liked the sound of the middle-income break, while others who leaned to the NDP might well have been attracted by the tax-the-rich part.

Trudeau signalled how important the tax promises were when he declared on Oct. 9—just as the campaign entered its home stretch—that the very first legislation a Liberal government planned to table in the House would be to push through the changes. “You’ll see more money on your paycheques right away,” he said. The Liberals touted the tax cut as being worth up to $670 per person, or a tidy $1,340 per year for a two-income family.

It sounds like a nice chunk of cash. But a closer look by an independent economist shows that few tax-paying households will reap anywhere near that much. Trudeau vows to trim the federal tax rate on income between $44,700 and $89,401 a year, from the current 22 per cent to 20.5 per cent. At the same time, the rate on income $200,000 and over will rise from 29 per cent to 33 per cent. In a neat bit of tax-design symmetry, the higher top bracket is calibrated to bring in the entire $3 billion needed to pay for the lower-middle bracket.

What might surprise many middle-income voters, though, is how the $3 billion in tax savings will be distributed. David Macdonald, senior economist at the Canadian Centre for Policy Alternatives, an Ottawa-based think tank, used a Statistics Canada model to project how the Liberal proposal would affect families at various income levels. To get the maximum benefit, an individual must be making nearly $90,000, and having two earners in a family, both making that much or more, generates the highest savings. That leaves the tax cut for those who make considerably less looking very modest.

Macdonald has forecast the benefits for what Statistics Canada calls “economic families,” which include couples, with or without children, and single parents. The roughly 1.6 million families making about $48,000 to $62,000 will see their tax bills trimmed by, on average, just $51, while those making $62,000 to $78,000 will save $117. The tax savings rise steadily with family income, to $521 on average for families in the $124,000 to $166,000 range, and $813 for those making $166,000 to $211,000. Above that level, the new, higher top tax bracket erases any savings the families got by paying less tax on income in the reduced middle tax bracket.

Macdonald dismisses the excuse that income-tax cuts almost automatically amount to more for those earning more money. “The smart folks at [the Canada Revenue Agency] can design you a tax to do whatever you want it to do,” he says. Even calling the Liberal proposal a middle-class tax break is debatable, Macdonald says, since those who stand to benefit the most—families in the $166,000 to $211,000 income range—are in the top 10 per cent of Canadian earners. He calls those familes “upper middle class.” (As for families earning more than $211,000, Macdonald says they will pay, on average, $2,912 more in federal tax.)

Although Macdonald doesn’t like the way the planned tax changes fail to funnel savings further down the income spectrum, he does approve of other policies Trudeau has promised. The Liberal platform’s most ambitious single measure is a plan to combine a raft of existing federal payments and tax breaks for parents into a single one, to be called the Canada Child Benefit (CCB). “The total revamping of the child benefit system will certainly benefit lower-income households with children substantially more than it will benefit anyone else,” Macdonald says.

During the election, Trudeau sometimes mentioned the CCB in the next breath, after his high-profile tax changes, although it’s more complicated, and thus harder, to pitch in a campaign. The CCB promises more money to all families with kids whose incomes fall below $150,000. For a two-parent family, with two children, making $90,000, the tax-free monthly CCB cheques will amount to $5,875 a year, or $2,500 more, the Liberals say, than the same household gets under the parcel of benefits introduced or modified by Stephen Harper’s Conservatives.

Sherri Torjman, vice-president of the Ottawa-based Caledon Institute of Social Policy, calls the CCB “extraordinarily important.” Torjman, who is not a Liberal but served on an economic advisory council that Trudeau met with regularly before the campaign, urges critics to look at the tax and benefits policies as a package. “It will take at least a year, maybe two, but, at the end of the day, the middle-class household will certainly be better off,” she says. It seems some taxpayers who expected a big boost right away are going to be asked to be patient.


The truth about Trudeau’s tax cuts

  1. you have to realize that the ccpa and the liberal party are approaching this from different perspectives. the ccpa is looking at it as a way to reduce inequality (and perhaps debt), while the liberals are looking at it a a way to increase disposable income to get more money moving in the economy. when you realize that, the truth is that they’re both right. while the ccpa will correctly point out that this tax cut isn’t going to get anybody out of poverty, the liberals are equally correct in their logic that it’s spending by the upper middle class (or perhaps middle middle class) that is really what they’re aiming towards.

    the reality is that if you give a big tax break to people on the lower end of the scale, it’s going to end up in the bank. it’s going to pay off credit card bills, go to downpayment on mortgages, pay down student loan debt and other things of the sort. this may help people’s finances, but there’s no economic benefit.

    however, the thinking is that if you give a tax break in the middle of the scale then you get people buying cars and other big ticket items and that helps with a bit of stimulus spending. the next step here – and i’m using this language consciously – is that that money trickles down into the economy, creating service jobs.

    the criticism of reaganomics is less in the idea and more in the implementation. if you give millionaires tax cuts, they don’t spend more money – because they already have more money than they can spend. if you give poor people tax cuts, they don’t spend more money either – because they’re in debt. this income range was targeted specifically under the thinking that it would maximize the amount of it getting spent, rather than saved or eaten by interest.

    now, will that *actually* create jobs? not in an open economy, i don’t think. or, to put it another way – it might create jobs in asia or mexico, but perhaps not many here.

    but, the ccpa’s analysis – while correct – is judging the policy on the basis of something it’s not intending to accomplish. it’s meant to give people that are in a position to spend more money to spend, not to tackle issues of inequality.

    • the truth is that everything about this makes sense, in terms of the textbook. we’ve got millionaires sitting on billions or trillions in the bank. the economy is stuttering because the rich aren’t spending their money. it’s entirely reasonable to take steps to get the money in circulation.

      but, it’s a right-wing economic policy. you just don’t recognize it because it’s actually coherently constructed in order to actually work.

      • …or, if you want to play games with dynasties, to get a quick comparison in?

        this is what the bush tax cuts should have looked like, and would have looked like if they were implemented intelligently.

        • With all due respect Jessica, you sound like someone that is a Liberal supporter who is now trying to perform the awkward mental gymnastics required to make these proposed tax cuts sound like smart policy. Taxing the so-called “rich” so that some very meager savings can be passed onto the slightly less well off will not do anything for the economy. I am the sole income earner while my wife is in school full time. I pay all the bills and now, I can expect to enjoy tax savings of $51.00. Of course, now that income tax splitting has been eliminated, my net tax bill will be considerably higher.

          The reality of Trudeau’s tax policy is that it was not designed out of any intentions to spur on the economy. It was designed out of divisiveness. Rally the middle class against the villainous upper class to secure their vote. That’s all that this was about. That the actual results seemingly do little for the middle class and appear quite nonsensical is irrelevant to them because that was never their concern.

  2. Now you’re explaining how the proposal will work? It wasfrustrating to see the media repeatedly mischaracterize the Liberal proposal as a benefit to people earning between 45 and 90 k throughout the campaign. Some basic analysis would have shown it would benefitting the “almost rich” more than anyone. Can’t believe we needed a study to help explain this. Although to be fair, I’m not sure most Liberal Candidates ever understood the impact of the proposal from how they described it.

  3. Ridiculous article.

    “But a closer look by an independent economist shows that few tax-paying households will reap anywhere near that much.”

    Well duh? A 1.5% reduction on a lower salary will result in less savings. And yes, when you are at the low end of the spectrum it is practically meaningless.

    Election campaigning to appease the masses.

  4. Shell game: now you see it now you don’t. The Cons taxes were really l;ow and if you are smart enough to earn more you got to keep. This is nothing to crow about. As one correspondent noted, the income splitting would have left much more in the pocket. That is the problem with the Libs they have been contesting on the left with the NDP/CCF for almost 80 years and they don’t know how to do anything else.

    • Abbers here is trying to imply, that those that earn more, did so as a result of being “smarter”. In many cases the higher incomes accrued because of paying subterranean wages simply because there exists a surplus of labour for those industries. Fast food franchise owners, Walmarts, you get my drift. Sly like Shylock, but smart, not very.

  5. “(As for families earning more than $211,000, Macdonald says they will pay, on average, $2,912 more in federal tax.)”
    ‘Plain this one to me Lucy!! How does a 4% Federal tax increase on those making more than $211,000
    not average more than $8000/year???

    • Jerome, you are not taking the marginal tax rate into consideration. Someone that earns $200,000 per year does not pay 33% on the entire $200,000. If they did, that would leave them far better off earning $199,000 and being taxed at a lower tax bracket. Instead, that $200,000 income tax earner pays tax at the lowest level for the first $44,701, the second lowest for income earned between $44,702-$89,401, the third highest for income earned between $89,402-$138,586, and the fourth highest for income between $138,587-$199,999. It is only after this that someone will be taxed at 33% for all income that they earn above $200,000, and that is why the average tax increase for this earner is not $8,000.

  6. What, you thought Trudeau is Robin Hood robbing from the rich to give to the poor? It makes sense that households with up to two income earners with a total income of $166-$211K (potentially 2@ $83-$105.5K) are considered middle class when one looks at the incomes required to live middle class in the urban areas where the majority of Canadians (and voters for that matter) live. This appears to have been a shrewder policy/voting incentive than what was offered by either the Cons or NDP. I would think that a tax tweak that strengthens the disposable income towards taxpaying “economic families” who are most likely to have disposable income that will be recirculated back into the local economy (rather than towards the top 12% earners that Harper Con tax policies targeted…is a general benefit to a larger number of Canadians and the local Canadian economy.

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