Tax “takers” ?

A recent piece in the Vancouver Sun by Don Cayo piqued my interest, mostly because it appeared to be not much more than a press release from the Fraser Institute. You know, that “institute” that doesn’t pay taxes, complaining about people who don’t pay taxes. (WTF?)

According to Don Fraser, I mean the Cayo Institute, I mean the non-Taxpaying donation tax receipt issuing Institute, 37% of Canadians don’t pay any income tax. Fraser apparently thinks that this is unfair, and that poor people should pay more.

I’ve been playing around with the statistical infomation available on the Canada Revenue Agency website (available here ). Some of what Fraser asserts appears to be based on this data as well, so I think what follows is based on similar, if not the exact same data.

Shockingly Fraser and Cayo may be right. My numbers are slightly different, but not by much. Of course, what is more interesting is the complete lack of context in Cayo’s piece, and the “report” from Fraser doesn’t seem a whole lot better. Sure they have more detail, but let’s be real. Most people are not going to read the Fraser “report”. The general public will only know what people like Cayo decide to pass on.

So for a little more context:

There’s about 8.7 million people in Canada that file a tax return, but have no tax payable. These are people who have income but have enough deductions and non-refundable tax credits (NRTCs) to result in no actual tax payable. There are another 17 million who file a return and do have tax payable. Shockingly 46% of those non-taxpaying scofflaws have employment income. Averaging about $3100 per person. In fact, on average they have a whopping $10,000 or so of total income, which is less than the basic personal exemption. If your income is less than this, you have no tax payable.

About 25% of these “tax takers” are claiming the age amount, which is a credit available only to people 65 or older. In other words, a quarter of these non-taxpayers are seniors. Poor ones at that.

Not suprisingly (well not to me, but maybe to Fraser and Cayo) about 2 million of the 8.7 million (about 23%) are people under the age of 25. You know, the 14 year old who has a paper route, the high school student who has a part time job, post-secondary students who are working part time or may be getting RESP income to fund their schooling. What scum.

What seems to be lost on Cayo and Fraser is that while many of these young people are not paying any tax, for many of them their income is actually being taxed indirectly. How’s that you ask? Let’s say you are a high school student with a part time job making $10,000 a year. Well below the basic exemption so you don’t pay any income tax. But when your single parent does their tax return SUPRISE! The “amount for an eligible dependant” credit you could claim is reduced by the dependant’s income. Say bye bye to that credit. So while techically the child isn’t paying any income tax, the parent is effectively paying income tax on the child’s income. If the child quit their job, and the parent took the child’s job, the family income would be the same. But the “tax taker” that Cayo and Fraser seem so concerned with would no longer exist.

Some might ask why would a teenager even bother filing a tax return if they don’t make enough to have to pay taxes. Well there are two important reasons. If their employer is withholding tax from their paycheque, you would get a refund of the tax withheld. The second, and just as important is that filing a return generates RRSP contribution room. No, you can’t open a RRSP until you are 18, but you can create contribution room that can be used later in life.

Now that we’ve got poor seniors and students out of the way, who’s left? The poor and the working poor, that’s who. When you start looking at the 25-65 age range it kind of jumps out at you that the number of people who are are not paying taxes and are also receiving social assistance payments hovers at about 90%.

Besides trying to enrage taxpayers (the ones that actually do pay taxes) Cayo seems to think that people who don’t pay taxes are a danger to democracy. Since they don’t have to pay, they obviously don’t care about how governments spend money because, as he says they “have no skin in the game”. While I am sure there are people who don’t have to pay taxes who are apathetic, I also know more than a few who do pay taxes who are also apathetic.

At various points in my life I have been in several of the above mentioned groups, student, working poor, and I was just as concerned with how tax dollars were spent then as I am now. And I pay a lot more in income tax today than I did back then.

Cayo seems to ignore that for (in my opinion) the vast majority of people in Canada move into and out of these “tax taker” groups depending on various stages of life and the circumstances we all face over time. Most of us start out in the high school student with part time job group, move into the post-secondary student group and then “graduate” to become taxpayers. Ones that earn enough to have to pay taxes. Maybe at some point along the way unforseen circumstances push us into the working poor group and hopefully we work our way out of it.

At the end of Cayo’s piece he says “it seems to me it goes too far when well over a third of all citizens are exempt from income tax, the main tool the federal government has to raise the money it needs to provide services.” I don’t really know how much money Don thinks the Feds can squeeze out of the poor, the working poor, low income seniors, and students with part time jobs but I’m going to go out on a limb and suggest that it ain’t going to be much. And I don’t think that making them pay taxes, reducing their already meager take home income, and thereby depriving them of the basic necessities of life, like food, clothing, and shelter will make them care more about holding our various levels of government accountable for how they spend our tax dollars.

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