In the tax battle between federal Finance Minister Bill Morneau and some in the public over proposed changes to private corporations, plenty of gigabytes have been typed out on whether sheltering more income from higher tax rates is fair.
Mr. Morneau's answer is "no." He is also selling the tax changes as tax simplification. The latter is a laudable end, although as Tim Cestnick pointed out in July, the Finance Minister's proposals could end up making taxation more and not less complex.
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But let's examine the core assumption that animates the Morneau tax plan: that the ostensibly wealthy – general physicians, small entrepreneurs and farmers may dispute that label – do not now pay enough tax. That this is the inspiration is clear. Just recently, Prime Minister Justin Trudeau defended the proposed tax changes in this manner: "Everyone knows, the middle class pay too much in taxes and the wealthiest don't pay enough. This is about levelling the playing field."
Is the Morneau-Trudeau assumption correct?
To grasp the answer, it helps to understand the share of income taxes paid by Canadians at different incomes. To uncover that, consider Canada Revenue Agency data from 2014, the year before federal and (many) provincial governments began to raise taxes.
The first notable statistic: Of 27.5 million people who filed a tax return in 2014, 9.1 million paid no federal income tax for reasons that included low incomes or a previously unused RRSP deduction among others. That's the first relevant statistic: One-third of tax filers pay nothing in federal income tax (or provincial given that the federal government determines taxable income for nine provinces). Those taxpayers do pay other taxes, the GST/HST for example. However, low-income Canadians also receive full or partial rebates for such taxes.
As for who pays what in income tax, start with those who report incomes of less than $50,000. In 2014, that cohort represented just more than 68 per cent of tax filers and earned roughly 32 per cent of all income. Their share of all federal income tax collections: a bit more than 13 per cent. For those with incomes between $50,000 and $99,999, more than 23 per cent of all tax filers, their share of all income at 35 per cent was identical to their share of total federal income tax collected: 35 per cent.
There is no accepted definition of who is rich, middle income or poor. But most people might think incomes greater than $100,000 provide a comfortable living. Here now we approach the Prime Minister's claim, which I pose as a question: Do they pay their "fair share" of taxes?
For any reasonable person, the answer should be "yes" and based on the following: In 2014, those whose incomes exceeded $100,000 represented more than 8 per cent of all tax filers, garnered slightly more than 33 per cent of all income and paid nearly 52 per cent of all federal income tax.
Or expressed differently: If having less than one-tenth of all tax filers pay more than half of federal income tax isn't yet fair, it is unclear what proportions will satisfy the tax-the-rich-more class warriors.
Break down that six-figure cohort even further with a look at incomes greater than $250,000. In 2014, they represented 1 per cent of all returns filed and earned 11.3 per cent of all income. Their share of federal income tax paid: 21.1 per cent.
For the record, the provincial statistics are broadly similar. And here is one last relevant fact in this debate: Consider all taxes and fees as a percentage of the economy. In 2014, such revenues amounted to 38.5 per cent of GDP; in 2015 the figure was 38.6 per cent.
That percentage has been higher during wars and when governments paid a fortune in debt interest (in the 1980s). However, there was a notable decade when governments taxed Canadians less than they do now: the 1970s, when the current Prime Minister's father, Pierre Trudeau, was (mostly) in power. Between 1970 and 1979, total taxes and fees sent to all levels of government never rose above 38.1 per cent of GDP (in 1974). In the Pierre Trudeau decade, the lowest taxed year was in 1970. That's when revenues to all governments constituted 35.2 per cent of the economy.
I agree with the current Prime Minister's claim that the "middle class pay too much in taxes." But that's because I know how often governments misallocate our tax dollars. But Mr. Trudeau's claim that the rich don't pay enough – the core assumption in the proposed tax changes – is simply wrong: There is no one in Canada who pays too little in tax.
Mark Milke is author of Tax Me I'm Canadian: Your Money and How Politicians Spend It.