By Charles Lammam
and Hugh MacIntyre
The Fraser Institute
Prime Minister Justin Trudeau’s government has repeatedly said it wants to help families “working hard to join the middle class.” But has the government lived up to this rhetoric on personal income taxes, a key policy area where it’s been particularly active?
Over their two years in government, the Liberals have made a number of changes to federal personal income taxes. They include changing tax rates and eliminating several tax credits.
And what’s been the overall effect of those tax changes? Higher income taxes for many families who can least afford to pay.
Let’s consider those taxpaying families with children in the bottom 20 per cent of income earners (defined as a family income below $66,448).
These families benefited little from the government’s signature tax policy, which reduced the second lowest federal tax rate from 22 to 20.5 per cent.
Why? Because this rate reduction only applies to individual incomes between $45,916 and $91,831, so few families in the bottom 20 per cent received a meaningful tax cut. In many cases, these families don’t have members with income high enough to benefit from the tax cut at all.
Instead, many of these families now pay higher income taxes because the government eliminated a series of tax credits that allowed them to reduce their tax burden. This includes credits for income splitting for couples with children, children’s fitness, public transit, education and textbooks.
A recent Fraser Institute study noted that once all the major tax changes are accounted for, 61 per cent of the bottom one-fifth of taxpaying families with children now pay higher income taxes – $269 more, on average.
The government will, of course, claim it’s delivered on its rhetoric of helping families working hard to join the middle class, citing increased transfers through the Canada Child Benefit (CCB). Indeed, Trudeau recently implied that increasing government transfers is equivalent to cutting taxes.
In reality, there’s a critical difference. A tax cut rewards families who work hard by allowing them to keep more of their money. In contrast, increased transfers make families more reliant on government.
Perversely, if families in the bottom 20 per cent earn more income, they’ll lose part of their CCB transfer because its value declines as family income rises. So not only has the federal government increased taxes on the bottom one-fifth of families with children, it’s also created circumstances where families who succeed and begin to progress get penalized through reduced CCB benefits. (The specific amount the transfer is reduced depends on a family’s income and number of children.)
Raising taxes and increasing transfers won’t encourage Canadian families in the bottom one-fifth to join the middle class by working hard. Instead, history shows it will lead to greater dependency on government.
Encouraging hard-working Canadians to join the middle class is a vitally important policy goal. Unfortunately, the government’s tax policies run contrary to this aim.
Charles Lammam and Hugh MacIntyre are co-authors of the Fraser Institute study “Effect of Federal Income Tax Changes on Canadian Families Who Are in the Bottom 20 Percent of Earners,” available at www.fraserinstitute.org.
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