The public is giving too much value to the proposed Liberals’ tax break for the so-called middle class. At most it is worth $670 to an individual earning $89,401. And there’s the downside of increasing the rate on those earning more than $200,000 by 4 percentage points. Those extra percentage points will tip the scale over to a non-sustainable level as it increases the rate for many to over 50 per cent and can be as high as 58.75 per cent for those in New Brunswick.
The Liberal policy booklet entitled “Fairness for the Middle Class” shows that the tax break of a mere 1.5 per cent (as the marginal tax rate is going from 22 per cent to 20.5 per cent) only applies at the income level of $44,701 to $89,401.
The tax rate will be increased from 29 per cent to 33 per cent on income above $200,000. However, the old rates remain intact for those earning $89,401 to $200,000.
The Liberals appear to be defining the middle class as individuals with incomes from $44,701 to $89,401. A married couple earning, say, $40,000 each get no benefit as they are not considered middle class under this Liberal Policy. On the other hand, if one spouse earned $80,000 and the other had no income, then they benefit by a tax reduction of $529.
It is worth noting that a married couple without children in Ontario earning $80,000 in employment income would pay a total combined federal and provincial income tax (along with CPP and EI) at the effective rate of about 20.37 per cent to 23.91 per cent, depending on the split between them of the $80,000 of earnings.
However, if the individual is a big salary earner, say $2 million, and the spouse has no income then the combined tax works out to $964,377 being an effective rate of 48.22 per cent. Add the Liberals’ four per cent increase to that and there would be an extra $72,000 of taxes payable. The high-income earners are already paying a substantial percentage more of their total income than the so-called middle class under current rules.
The tax break of a mere 1.5 per cent only applies at the income level of $44,701 to $89,401
Basically, in order to give a marginal tax savings to many people who earn $89,000 the Liberals propose to significantly increase the taxes payable by very few by a large amount.
Mulcair to his credit in the first debate made the point that Trudeau’s tax increase would bring our combined rate to unsupportable levels and would reach 58.75 per cent in New Brunswick. Mulcair went on to say that New Brunswick is trying to establish a desperately needed medical faculty and how could it attract top talent if the tax rate is 58.75 per cent.
Unfortunately, a similar analysis should be thought through with regard to his proposal to raise corporate tax rates. Increasing tax rates affects behaviour and the amount of taxes collected will not likely be equivalent to the increase in the rate of tax.