This is a really good article, and worth the slog through the numbers. I knew Jim Stanford many years ago -- one of the brightest people I've met, although obviously we're not on the same page ideologically.
The rich: Canada's misunderstood tax heroes
William Watson
National Post
Wednesday, May 07, 2003
'The rich are different," F. Scott Fitzgerald is supposed to have told Ernest Hemingway, to which Hemingway famously responded: "Yes, Scott, they have more money than we do." If Hemingway were alive today he could have added: "And they pay a helluva lot more tax."
In a characteristically spunky column in another national newspaper a couple of weeks ago, CAW economist Jim Stanford wrote about "how the other half lives." His subject, as tax time approached, was the tax profile of the 102,980 Canadian tax filers who in the year 2000 declared more than $250,000 in total income. Not to be too picky, but they're not exactly the other half. More like the other half-a-per-cent of filers. (To be precise, they were 0.463 per cent of all filers in 2000.)
It being a Stanford column, there was a lot of pointed joshing about how these happy few make most of the country's capital gains and earn their money by cashing in stock options and so on -- which is true to a point, though see my column of April 23rd reporting on a recent academic study that showed that unlike in the past, the people who show up in the very top income strata today earn their money the new-fashioned way -- by labouring for it, like the rest of it.
Although a lefty, Stanford is fundamentally honest, so his column also contained -- albeit tucked away at the bottom, where the lazy reader might not find it -- an admission that these happy few also pay the country's highest income taxes. On average in 2000, they paid 34.6% of their income in federal and provincial income taxes, compared to the national average rate of 18.2%.
Now if you're of a redistributive cast of mind, you might think that making these lucky 102,980 pay just less than twice what the average guy pays isn't nearly fair enough. But if you did, then you'd have been tricked by the averages. Because "the average guy" doesn't pay 18.2%, even though that is the average rate of tax (i.e., the total amount of tax paid divided by the total of income declared). In fact, people only pay that much if their total declared income is between $45,000 and $50,000 a year. But they're not "the average guy": Almost 80% of taxpayers don't make that much income.
That sounds a horrible condemnation of Canadian society: that almost 80% of people make less than $45,000-$50,000 a year. But that's a bit deceiving. The income tax statistics are for individuals, because we tax people as individuals. But in fact, most people don't live as individuals, all on their own. They live in families in which they share their incomes.
If you slide down the scale to where the median taxpayer -- the guy in the middle -- does live, that occurs at a little over $20,000 a year of declared income. And the tax take in the $20,000-$25,000 bracket is just 10% of declared income. So with an average rate of 34.6%, the lucky -- or really hard-working -- few pay three and a half times what "the average guy" pays.
Maybe you don't think that's enough. I expect Jim Stanford doesn't think that's enough. But the really remarkable thing about the income tax data is how much of the burden is carried by how few of the people. Most Financial Post readers, the surveys say, are not in the bottom half of the income distribution. So in this paper a story about how "the other half" lives should focus on that bottom half.
Let's do that. If you look at people declaring $25,000 of income or less, they are more than half of tax filers, they make less than one-fifth of all income, and they pay just one-sixteenth of all income taxes. That's right: More than half of all tax filers pay just 6.14% of all the country's income taxes.
On the other hand, if you look at Jim Stanford's "other half," those making more than $250,000 a year, they are less than one-half of 1% of taxpayers, they make 9.1% of declared income, and they pay 17.3% of all the income taxes paid in Canada.
If you look at people making more than $100,000 a year, they are one-thirty-seventh of filers, making just under one-fifth of declared income and paying just under one-third of all income taxes.
Take that down to $80,000 a year and you're still under 5% of tax filers, making one quarter of all income and paying more than two-fifths of all income taxes.
Where's the dividing line at which half of all taxes are paid? At around $70,000. The 7% of Canadians who make more than that pay roughly half of all income taxes. The 93% of Canadians who make less than that also pay roughly half of all income taxes.
Seven per cent of Canadians carrying half the tax load. Do we really want to get "fairer" than that?
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