Wednesday, January 23, 2008

A Tax Proposal Worth Considering

The Canadian Taxpayers Federation (CTF) proposes a multi-year tax reform that would both lower the income tax burden on Canadians and simplify the tax code in a manner that strengthens the Canadian economy. The proposal recommends extending the 15% tax rate for personal income under $80,000 (currently the limit is $37,885, after which 22% rate applies), with the income above the $80,000 threshold to be taxed at 25% (currently: 26-29%).

To further simplify the tax code, over a dozen various tax credits would be replaced with higher personal and spousal exemption ($15,000 instead of $9,600), with only a handful of deductions maintained (age amount, child/eligible dependent allowances, RRSP contributions and charitable giving). If implemented, the proposal would provide overall personal tax relief of $25B by 2012.
“The tax relief proposed by the CTF is readily affordable by 2012, provided modest spending restraint is undertaken by the federal government … Restraining federal spending to 2.5% nominal growth per year, beginning in 2008, would produce planning surpluses of $21.9-billion and $28.1-billion [in fiscal 2011/12 and 2012/13]. This implies that personal tax relief of $25-billion per year is possible by 2012, while setting aside $3.0-billion annually for debt reduction and without running a fiscal deficit.”(The C.D. Howe’s Impact of Fiscal Measures is included in the report.)

“The decisions Finance Minister Jim Flaherty makes in the upcoming budget will determine the size of tomorrow’s income tax cut,” noted Williamson. “If the Conservatives exercise modest spending restraint they will finally be able to deliver meaningful personal income tax relief. We must not forget that Canada has the highest personal income tax burden of G7 nations, yes even higher than the French.”
Notice, the CTF doesn't even mention spending freeze, let alone bringing the program spending back to 1996/97 level. The CTF only calls for a spending restraint, suggesting a 2.5% limit on program spending increases. With tens of billions in wasteful spending, that have accumulated since 1996/97, such restraint could be achieved and overachieved quite easily.

If you think that the CTF proposal only benefits the rich - think again. While the high-income earners may be saving 1 to 4 cents on each extra dollar they make, the low- and middle- income Canadians will see the biggest reduction percentage-wise:
  • Nearly 1.4 million low-income Canadians (individuals making between $9600 and $15,000, families making between $19,200 (+$2038 per child) and $30,000 (+$2200 per child) will be removed from the income tax roll. Their tax savings will be 100%.
  • Individuals making between $15,000 and $37,885 (those that are currently in the 15% bracket) will be saving between 20% and 100%, depending on their income level.
  • There will be no more income tax penalties for single income families, earning between $37,885 and $80,000. Their tax burden will go down by at least 38%.
Also let's not forget another important fact: 52.6% of the income tax revenues are paid by the top 10% of taxpayers. And, guess what - the top 10% aren't really millionaires. Those are middle-class Canadians, earning $64,500 or more - barely enough to sustain a household. For decades, they've been picking up the tab for the lion share of the government's wasteful spending, election promises and handouts to special interest groups. The CTF proposal will provide them with a tax break they truly deserve.

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