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DOING THE MATH ON FAMILY TAX CREDITS SHOW FINANCIAL DISCRIMINATION OF POOR, LOWER MIDDLE CLASS FAMILIES AND SINGLES-Part 1 of 2

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DOING THE MATH ON FAMILY TAX CREDITS SHOW FINANCIAL DISCRIMINATION OF POOR, LOWER MIDDLE CLASS FAMILIES AND SINGLES-Part 1 of 2

(These thoughts are purely the blunt, no nonsense personal opinions of the author about financial fairness and discrimination and are not intended to provide personal or financial advice.)

The Canada Child Benefit (CCB) consists of tax-free monthly payments that began in July, 2016 and provide maximum annual benefit of up to $6,400 per child under the age of six, and up to $5,400 per child ages six through seventeen.  This benefit is income-tested (but not net worth and assets tested), such that the amount depends not only on the family income, but also on the number of children and their ages.  (These amounts start being reduced when the adjusted family net income (AFNI) is over $30,000 and also is dependent on number of children in the family.  On the portion of adjusted family net income between $30,000 and $65,000, the benefit will be phased out at a rate of 7 per cent for a one-child family, 13.5 per cent for a two-child family, 19 per cent for a three-child family and 23 per cent for larger families. Where adjusted family net income exceeds $65,000, remaining benefits will be phased out at rates of $2,450 and 3.2 per cent for one-child family,  $4,725 and 5.7 per cent for two-child family, $6,650 and 8 per cent for three-child family and $8,050 and 9.5 per cent for larger families on the portion of income above $65,000).

The following scenarios from “Doing the child benefit math” by Jamie Golombek (financialpost), Financial Post September 30, 2016 shows financial evaluation performed by Jay Goodis from Tax Templates Inc.  This evaluation shows the impact of CCB on various levels of income in 2016, the after-tax cash they would keep along with their effective tax rates.

Scenario 1 – Low-income family

A Manitoba family has two kids under five and two working parents, each earning $15,000 of employment income. They are eligible for the entire CCB of $12,800; after paying CPP, EI, and a bit of tax, they net $39,560 of cash.

What would happen if one parent was able to work more, or was to get a higher paying job, such that she now made $25,000 — an increase of $10,000?  While she’s still in the lowest federal and Manitoba tax brackets, once you factor in the loss of CCB, the additional tax, CPP, and EI, her take-home extra cash is only $5,563, resulting in an effective marginal tax rate of a whopping 44 per cent (39 per cent if you ignore the additional CPP and EI contributions.)

As Goodis observed: “The CCB skews the progressive tax system and imposes a high effective tax on low income earners with children.”

Scenario 2 – Median-income family

A British Columbia couple has two children under the age of five. Their family’s income, consisting solely of employment income, is $76,000 split equally between each spouse. Their $12,800 of CCB is reduced to $7,448; and after federal and provincial taxes, CPP, and EI, the family nets $69,135 of cash. In other words, even with the clawback of some of their CCB, the couple has kept 91 per cent of their earned income.

Scenario 3 – High-income earner

Finally, consider an Ontario professional with three kids, two under five and one teen, earning $200,000 annually.  His CCB will be about $750 for the year.  If he were to earn an extra $1,000 of income, he would keep only just under $400 of it, resulting in an effective marginal tax rate of just over 60 per cent once the loss of the CCB is taken into account. (His status is not stated, assume he is a single parent?)

child-benefit-math-3-scenarios

ANALYSIS

With a fuller analysis of the information the following assumptions can be made:

  1. Minimum wage-most minimum wages in provinces range between $10 and $11 per hour, so it is hard to imagine that family in scenario 1 (low-income family) only makes combined income of $30,000.  At 2,000 annual hours of work per year per person, each person’s hourly rate only equals $7.50.  One must assume they are working part time jobs and are unable to find full time work.  Net income after deductions and with CCB of $39,560 still equals net hourly wage of only about $10 per person.   (The other possibility is that this family is wealthy by having huge net worth and assets that are not considered in the CCB and, therefore, do not need to work at full time jobs). For scenario 2 (medium-income family) the net wage after deductions and with CCB earned per hour equals about $17 per person.  For scenario 3 (high-income earner) and assumed 50% tax plus $750 CCB on $200,000 the net wage earned per hour equals about $50 per person.
  2. Income tax reductions-in scenario 1 (low-income family) get none of the 1.5% Liberal tax reduction because each of their incomes do not fall in the $44,401 and $89,401 range.  The same applies to scenario 2 (medium-income family).  Scenario 3 (high-income earner) gets the 1.5% tax deduction for income between $44,401 and $89,401.  Only upper middle-class families with individual spouse’s income over $44,401 to $89,401 would quality for income tax reductions in these scenarios.
  3. Canada Pension Plan (CPP)-both scenario 1 and 2 families will not receive maximum CPP retirement benefits because their individual incomes fall below the 2016 YMPE $54,900 individual income level.  In scenario 3 (high-income earner), he will earn full CPP benefits.  (Fact:  Canada Child benefit tax-free income will not require CPP contributions, so income excluding CCB was used for calculation of CPP retirement benefits.
  4. Canada Child Benefit (CCB)-For scenario 1 (low-income family) this family receives full Canada Child Benefits.  For scenario 2 (medium-income family) reduction is $4,275 and 5.7% for $76,000 income for total $5,352 CCB reduction. Reduction for scenario 3 (high-income earner) is $18,200 minus $6,650 and 8% for $200,000 income which equals total $17,450 CCB reduction.
  5. Understanding other calculations-For scenario 1 (low-income family) it is stated that an additional $10,000 in income would ‘produce take-home extra cash of only $5,563, resulting in an effective marginal tax rate (tax rate paid on last dollar of income and rate likely to be paid on next dollar of income-it is usually more than what is actually paid because basic exemptions, etc. have not been taken into consideration) of a whopping 44 per cent’. (Fifteen percent federal income tax on $10,000 equals $1,500, about 12% Manitoba provincial tax equals $1,200 and 13.5% Canada Child Benefit reduction on $10,000 equals $1,350 for a total of $4,050 not including additional CPP and EI payments).In scenario 3 (high-income earner, ?single parent) it is stated that with only an additional $1,000 income he would keep just under $400 of it, resulting in an effective marginal tax rate of just over 60 per cent once the loss of the CCB is taken into account.  When one takes into account that he is possibly taking home over $8,000 per month, it is likely that he will be able to max out his RRSP and TFSA accounts and will have maximum CPP benefits on retirement at age 65 if he works 40 years as well as RRSP and TFSA accounts to supplement his retirement income).
  6. Under-reporting of actual benefits received-Marginal tax rate-Since Canada operates on tax brackets, taxpayer will pay more tax when more is earned. However, it’s worth noting that tax rate paid is based on the income in each bracket. So the marginal tax rate doesn’t reflect the total that is paid on income. In fact, what taxpayer actually ends up paying, in terms of a percentage of income, is probably going to be lower than the marginal tax rate.  It should be noted that further possible provincial child assistance and family employment, GST rebate benefits and basic exemptions are not included in these examples.  Therefore, each scenario likely has more benefits than have been described in the examples.

CONCLUSION

As stated above by the financial analyst, statement is repeated here again:   “The CCB skews the progressive tax system and imposes a high effective (marginal used in these examples) tax on low income earners with children.”  Unfortunately, they create financial silos by including only one benefit without taking into consideration of the effect of other benefits.  In this post, attempt was made to include Liberal income tax deductions and possible retirement benefits to provide a better ‘across the board’ analysis of how upper-middle class families and wealthy benefit most.

While many families may view the CCB to be a wonderful program, boutique tax credits when taken into consideration with other programs can be shown to be less financially beneficial to low income and middle income families, especially with a stagnant minimum wage.  A stagnant minimum wage (minimum-wage) with a Canada Child Benefit may provide a better income for low income families for twenty or twenty five years during child-rearing, but will result in lower Canada Pension Plan benefits for seniors during their twenty years as seniors.  A higher minimum wage during child-rearing years will result in a higher income during child-rearing years, lower CCB along with higher CPP during senior years.  It is in the eye of the beholder and financial analysts to determine which is the better scenario.  A higher minimum wage appears to be the better scenario.

Another negative thing that can be said about the Canada Child Benefit program is that reductions of the benefit appear to decrease slightly with the addition of each child (resulting in a little more CCB being paid out with addition of each child).  This progression in CCB reductions appear to not follow equivalence scales (finances) where it is shown that cost of living per family does not increase times each additional child, but rather decreases per addition of each child.  (Example: cost of living square root equivalence scale one adult 1.0, two adults 1.4, two adults one child 1.7, two adults two children 2.0, two adults three children 2.2).  In scenario 2 (medium-income family) CCB benefit would be $3,598 for 1 child under 5, $7,448 for 2 children under five and $11,670 for three children under 5.  So, in fact scenario 2 family with three children would receive $292 more per child than family with one child even though equivalence scales show the cost of living per child is less for three children than it is for one child.

As has been stated in past blog posts, both the Liberal and Conservative parties, while handing out marital manna benefits and family benefits, have at the same time handed out benefits that favor upper-middle class families and wealthy the most. (Singles get none of these family credits and are unable to purchase homes and max out RRSP and TFSA accounts unless they have substantial incomes.) Some of these benefits include Liberal income tax reductions, maximum CPP benefits and exclusion of net worth and assets testing while failing to increase the minimum wage to an indexed living wage.  Politicians and governments continue to financially discriminate against singles and the poor while allowing the upper-middle class and wealthy to increase their wealth.

(This blog is of a general nature about financial discrimination of individuals/singles.  It is not intended to provide personal or financial advice.)

OPINION LETTER ON ‘LEFT’S BIG LIE…’ AND FINANCIAL DISCRIMINATION BASED ON MINIMUM WAGE CONTROVERSY

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OPINION LETTER ON ‘LEFT’S BIG LIE…’ AND FINANCIAL DISCRIMINATION BASED ON MINIMUM WAGE CONTROVERSY

(These thoughts are purely the blunt, no nonsense personal opinions of the author about financial fairness and discrimination and are not intended to provide personal or financial advice.)

This blog post was submitted as an opinion letter to a local newspaper on October 27, 2016 in response to three opinion letters entered in the paper on left and right wing political parties.  It should be noted that this opinion letter was edited and shortened by the newspaper because there are often only so many words that can be submitted to newspapers. The title of the opinion letter was ‘Notley is a champion.’  The three opinion letters on which this post was based are outlined at the end of this blog post’.  The ‘The left’s big lie…’ does not appear in its entirety.

October 13 and 20, 2016 letters ‘The left’s big lie…’, ‘Only right and wrong’ and ‘Minimum wage increase won’t help anyone’ letters only produce financial misinformation and reduce political process to shoes (Conservative-minded folks are in the right and the wrong party Liberal -socialist species are in the wrong-the left should only refer to shoes).

Re ‘The left’s big lie…’ statements on socialism and left-wing politicians, analysis shows Conservative and Liberal policies surreptitiously and purposefully eliminate the middle class, thus practising ‘selective’ social democracy (democratic).  Advertently or inadvertently, future class system will consist mainly of the poor, upper-middle class and wealthy while favouring married or coupled family units with multiple ‘marital manna benefits’.  Square root equivalence scale (if value of ‘1’ is used for a single person, then a value of ‘1.4’ is applied for two adults since it costs them less to live) and ‘financial fairness for singles’ are ignored (singles-finances).

During federal Conservative and Liberal party reigns, even while reducing social programs helping vulnerable populations of aboriginals and veterans, introduced programs like pension splitting and OAS clawback particularly benefit the wealthy and married or coupled family units.  In OAS clawback only about five percent of seniors receive reduced OAS pensions, and only two percent lose entire amount.  The very program that is supposed to provide a ‘very modest pension to low and middle-income seniors’ has been redesigned to benefit the upper-middle class.

During provincial Conservative party forty year reign and oil boom, just 1,048 new affordable housing units in Calgary were built over the past 14 years.  Two thirds of shelter beds in Canada are filled by people who make relatively infrequent use of shelters and are more likely forced into shelters by economic conditions (due to structural factors, the state of housing and labour markets that destine the very poor to be unable to afford even minimum-quality housing).

Federal Liberals have continued Conservative benefit programs like Canada Child Benefit in perpetuity which is based on income and number of children, but not net worth and assets, so families may receive large tax free child benefits and continue increasing wealth even while already having huge assets (tax-credit).  

Elimination of the middle class is also evident in Liberals’ proposed Canada Pension plan enhancements (canada-pension-plan).  Premise remains the same – individuals with highest YMPE will receive the most CPP, while those at lower income levels will receive the least CPP benefits. Persons with highest YMPE of $82,700 (massive jump from 2016 $54,900) and forty years of contributions will receive 33 percent CPP benefit or about $2,300 per month, while those making a minimum wage of $15 per hour, $30,000 annual income with forty years of contributions will receive about $800 per month.  A single person earning $15 per hour minimum wage would have to work two and half full time jobs for forty years to equal the $82,700 YMPE.  

Schizophrenic political systems exist where CPP pension enhancements are controlled federally, but minimum wages are controlled provincially.  The continued unwillingness of government and business to promote minimum wage increases to indexed living wages means the poor will remain in poverty even with pension systems that are supposed to improve financial quality of life as seniors.

The words ‘hard-working people’ has been used again to ad nauseum.  The idea that minimum wage only increases having to pay more income tax is ludicrous. Yes, increase in minimum wage may increase income tax deductions by, for example, 20 percent but these recipients will also have 80 percent more income to spend which will be used to increase product and services.  Increasing CPP, but not increasing minimum wage means children in the future who are living in poverty will receive less CPP, while their wealthy CPP parents and family members will receive the bulk of the CPP enhancements.

We are all responsible for not fighting financial greed of plutocracy, big government and corporations like Walmart, tax loopholes, Wallstreet, outrageous salaries and prices in the entertainment, sports industries, housing and gentrification of cities.  This has resulted in small businesses not flourishing and poverty increasing to an unprecedented level. Failure to increase the minimum wage instead of dealing with real underlying problems equals fighting the wrong fight.

More champions for the vulnerable like Rachel Notley and Bernie Sanders are needed. Bring it  on!  (End of opinion letter)

The three opinion letters that this blog post refers to are included as follows:

‘The Left’s Big Lie…’ October 13, 2016 local newspaper

The totality of this article talks about climate change and ‘The radical environmental movement as well as left-wing Canadian political parties, most notably the Alberta NDP, are telling the BIG LIE about our energy industry and the global environment.’…..To explain, it goes back to the goal of socialism, which is to “restrict private enterprise and control the economy”…..If we continue down the path dictated by our left wing politicians, the standard of living in Alberta will continue to decline…..Albertans must come together and take back government from these politicians who put their radical ideology ahead of the interests of all the hard-working people in our great province.’

‘Only right and wrong’ October 20, 2016 local newspaper

‘Great letter (The left’s big lie).  However we have to get this right and left idea straight.  The only thing in my home that is left is my shoe.  In politics, it should be referred to as follows:  Conservative-minded folks are on the right.  Liberal-socialist species are on the wrong.  Wrong being the proper opposite of right unless you are describing an object such as my shoe.’

‘Minimum wage increase won’t help anyone’ Oct 20, 2016 local newspaper

‘I do believe all people should make a living wage, but driving up the minimum wage does not have that effect.  If you look at the numbers according to the Government of Alberta website there are 290,000 people in Alberta that make minimum wage.  If they all get $1/hr. raise at approximately 40 hours per week the economy needs to breakout an additional $638 million, with no real increase in product or service.  The cost of all things go up and still we have no living wage, but those on minimum wage now pay more income tax.  So, now the NDP has made political points as well as more tax revenue, while some have lost hours or jobs.  All fixed income people, like vets and seniors, are hit most because they get no raise in pay.’ (End of post)

(This blog is of a general nature about financial discrimination of individuals/singles.  It is not intended to provide personal or financial advice.)

OAS CLAWBACK OUTRAGEOUSLY BENEFICIAL TO UPPER MIDDLE-CLASS MARRIED OR COUPLED SENIORS, BUT FINANCIALLY DISCRIMINATORY TO SINGLES AND POOR – ADDENDUM

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OAS CLAWBACK OUTRAGEOUSLY BENEFICIAL TO UPPER MIDDLE-CLASS MARRIED OR COUPLED SENIORS, BUT FINANCIALLY DISCRIMINATORY TO SINGLES AND POOR – ADDENDUM

(These thoughts are purely the blunt, no nonsense personal opinions of the author about financial fairness and discrimination and are not intended to provide personal or financial advice.)

One of our past blog posts (oas) on subject of the OAS Clawback (proper name is OAS Recovery tax as per Canada Revenue Agency) and the financial discriminatory properties behind the program was discussed.

This blog post further emphasizes the financial atrocities and discrimination that senior singles face with the OAS Recovery program.  The Old Age Security (OAS) is a federal social program designed to provide a very modest pension to low- and middle-income retirees.  It is part of the Universal government benefits for seniors (pillar 1) to ensure income security for senior Canadians (so stated in government and Canada Revenue Agency information sites).

As previously shown the clawback of OAS benefits in 2016 starts with a net income per person of $72,809 (couple $145,618)  and completely eliminates OAS with income of $118,055 (couple $236,110).  The repayment calculation is based on the difference between personal income and the threshold amount for the year. The  repayment of OAS is 15 percent of that amount.  All OAS is clawed back if personal income is over $118,055 per person.   In 2016 the OAS benefit is $6,680 for single person and $13,760 for a couple.

One should note that OAS recovery for a couple begins with each spouse earning maximum net income of $72,809 each (total $145,618) the OAS is only partially recovered for a couple with net income over $145,618 and a single over $72,809  The couple, therefore, continues to get to keep a portion of the OAS benefit for each person with the full financial benefits of additional up to $72,809 ($145,618 minus $72,809) net income than for a single person.

The complete clawback of the OAS benefit only occurs at $236,110 for a married or coupled family unit, but for a single person it is $118,055.  The couple, therefore, only has complete clawback of the OAS benefit with the full financial benefits of additional up to $118,055 ($236,110 minus $118,055) net income than for a single person.

Another point is that partial OAS recovery only begins at $145,618 for a married or coupled family unit while complete recovery (elimination of OAS) has already occurred for a single at $118,055.  In other words, married or coupled family units have been given the financial privilege of up to an additional net income of $27,563 to manipulate at their will ($145,618 minus $118,055); this has already been completed eliminated for a single senior.

CONCLUSION

If one carefully looks at the above, can a conclusion of double-dipping (triple-dipping, etc.) of finances for married or coupled family units be reached? (reasons) In majority of cases, upper-middle class married or coupled family units get to keep partial OAS benefits plus have benefits of additional net income plus pension splitting plus double TFSA limits, etc. The double-dipping, triple-dipping, etc. is even more pronounced as it has been clearly shown that it costs more for single persons to live than married or coupled family units.

The irony of the statement  ‘OAS program is designed to provide a very modest pension to low- and middle-income retirees’ at the beginning of this post should not be lost to the reader.  The very program that is supposed to provide a ‘very modest pension to low and middle-income seniors’ has been designed to ‘line the financial pockets’ of upper-middle class married and coupled family units who have more than a modest pension.

This once again shows how politicians and the government surreptitiously and purposefully implement benefit programs that increase the wealth of upper-middle class married or coupled seniors over single person seniors.  Politicians and governments are surreptitiously and purposefully creating a middle-class system where the upper-middle class are replacing the middle class.  What is advertently or inadvertenly being created is a class system comprised mainly of the poor, upper-middle class and the wealthy and favouring married or coupled family units.

(This blog is of a general nature about financial discrimination of individuals/singles.  It is not intended to provide personal or financial advice.)

WHO IS THE MIDDLE CLASS? AND FINANCIAL DISCRIMINATION OF SINGLES AND THE POOR

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WHO IS THE MIDDLE CLASS? AND FINANCIAL DISCRIMINATION OF SINGLES AND THE POOR

(These thoughts are purely the blunt, no nonsense personal opinions of the author about financial fairness and discrimination and are not intended to provide personal or financial advice.)

There has been much discussion in the last few years about who the middle class is and whether the middle class is disappearing.

Certainly, if one looks back technology has improved the quality of life.  Some of us older folks, but not that old, remember housework like laundry that included heating water on the stove, wringer washers and drying clothes on the line.

Other changes over the decades include the following:

  • Families have become smaller so income goes further (due to socio-economic pressures)
  • Day care and  college/university education have become very expensive, but health care and grade 1-12 education are covered under government programs
  • Certain occupations face high operating costs (farm machinery and price of farmland)
  • Social issues and cyberspace has made child rearing more complex
  • Knowledge’ and automation revolutions have replaced certain higher wage jobs with low wage jobs (service)

The definition of the stereotypical ‘American Dream Family: ’they own their own home, have more than one car, can afford to send their children to college, have access to healthcare and benefits, and have spare time to vacation or simply have free time in general.

INCOMES AND NET WORTH OF THE CANADIAN MIDDLE CLASS

In Canada it would appear that the middle class primarily includes those earning between $40,000 and $80,000.  However, when the Canadian population is divided into unattached family units and family units of two or more persons, the income levels are quite different. According to Statistics Canada 2013 (statcan.gc.ca/daily) the median after tax income for unattached persons over 65 is $25,700, for unattached persons under 65 $29,800, and female lone parent families $39,400.  For two parent families with children the median after tax income is $85,000 and senior families $52,500.  (After-tax income is defined as the total of market income and government transfers, less income tax).

The median net worth according to Statistics Canada 2012 (statcan) is as follows: Unattached person under 65 $22,700, unattached person over 65 $246,000, senior families $650,000, non-senior families couples only $365,200, non-senior families with children under 18 $302,100, lone parent families $37,000 and other non-senior families $423,000.

The following information from MoneySense shows Stats. Can. 2011 income and net worth data divided into quintiles:

INCOME TABLE (MoneySense based on Stats. Can. 2011 macleans)

INCOME (PRE-TAX) – HOW DOES YOUR PAY STACK UP

Quintiles Unattached Individuals Families of Two or More
Bottom 20 % $0 to $18,717 $0 to $38,754
Lower-Middle 20% $18,718 to $23,356 $38,755 to $61,928
Middle 20% $23,357 to $36,859 $61,929 to $88,074
Upper-Middle 20% $36,860 to $55,498 $88,075 to $125,009
Highest 20% $55,499 and up $125,010 and up

NET WORTH TABLE

Quintiles Unattached Individuals Families of Two or More
Bottom 20 % Negative to $2,468 Negative to $67,970
Lower-Middle 20% $2,469 to $19,264 $67,971 to $263,656
Middle 20% $19,265 to $128,087 $263,657 to $589,686
Upper-Middle 20% $128,088 to $455,876 $589,687 to $1,139,488
Highest 20% $455,877 and over $1,139,489 and up

(Caveat:  It is difficult to determine if unattached individuals includes widowers who often have more net worth than ever singles, early in life divorced persons and single parents).

DEFINING MIDDLE CLASS IN CANADA

Defining middle class in Canada by Sanita Fejzic (middle-class) article gives an interesting perspective on the middle class.

‘There are two ways of looking at the middle class. The first is to focus all the attention on the baby boomers and define middle class based on their experience. While this is problematic, it also makes sense for two reasons: (1) baby boomers make up a large portion of Canada’s total population, so, in terms of simple number crunching, their experience results in a national average and (2) because baby boomers are the majority, their votes become valuable and therefore most of the political rhetoric on middle class inevitably revolves around their experience. The hiccup with this scenario is that middle class baby boomers are relatively financially wealthy.

The second way of seeing middle class acknowledges the situation from an intergenerational point of view.

“Data suggests it’s really important to be careful about using the language of the middle class squeeze,” adds Paul Kershaw, Interim Associate Director, Human Early Learning Partnership at the University of British Columbia and Founder of Generation Squeeze Campaign. “While this language is popular among some political parties, it hides the reality that the squeeze is much more of an age issue.”

As Kershaw points out, high housing prices explain why the median 55-64 year old today reports wealth that has nearly tripled compared to the same age group a generation ago. “That’s not a middle class squeeze,” says Kershaw. “That’s the middle of a demographic nearing retirement with more wealth than the country has ever seen.”

High home prices that were good for people who bought homes decades ago are crushing their kids and grandchildren’s dreams of home ownership. “Gens X and Y pay housing prices that have nearly doubled after adjusting for the CPI, with wages that are down $3/hour, even though they are more than twice as likely to have post secondary [education] today compared to the past, and take jobs that are far less likely to pay generous pensions,” he explains. “In sum, the squeeze is primarily on younger generations.”

Political focus is on the baby boomer middle class.

As 93% of Canadians (see link) self-identify as middle class, all three political parties have high stakes when it comes to winning the hearts of middle class voters.

“The middle class is the political battleground,” states  Leslie Pal, Professor of Public Policy and Administration and Director of the Centre on Governance and Public Management at the University of Carleton. “And it’s not about which parties benefit the middle class but how they are appealing to an older, greying middle class.”

In other words, the three parties are either completely ignoring the generational aspect of the problem or simply don’t understand it. Instead, their energy is going into securing the votes of middle class baby boomers.

According to Pal, there are two broad directions the three parties have taken to appeal to the baby boomer middle class. “One is what I call the jelly bean policy and the other is policy that tackles major problems,” he says.

In jelly bean policy, small offerings are made to baby boomer middle class voters because they’re already living relatively comfortably and have no sense of urgency.

Here we see the Conservatives’ tax breaks on sports equipment, bus passes and policy that unbundles cable packages and the NDP’s messages regarding high ATM fees. “They’re tiny policies,” says Pal. “Like giving jelly beans, it’s sweet and tasty, but it doesn’t fix the problem.”

The other direction solves larger problems, with a focus on reforming the pension system. Much has been done to this regard and there is much to do.

“The use of the term middle class [in the political arena] is rhetorical to some extent,” says Pal. “The Tories have crafted a package whose appeal is sharper [to the baby boomers.]” They’re tough on crime, focused on tax breaks and have strict immigration policy.

The Liberals’ middle class rhetoric is lighter on policing and immigration and focuses on minorities, making ends meet and affordable education, while the NDP is focusing on household debt and lowering credit card fees. The NDP has created a number of social support systems that have safeguarded the middle class, including Medicare. However, their focus has traditionally been about protecting main-street workers and minorities.

But none of the three parties are drafting policy that addresses the threat of a disappearing middle class in the future. As they get ready for the 2015 election — and with the help of sophisticated technology to micro-target various demographic groups — they’ll have to remember to tailor real policies aimed at the group that’s potentially got the most to lose, generation squeeze’. (End)

THE DISAPPEARING MIDDLE CLASS AND HOUSING

(disappearing-middle-class) An Excerpt from Joel Kotkin’s Forthcoming book The New Class Conflict

‘…..This process has been greeted with enthusiasm by financial hegemons, who have stepped in with billions to buy foreclosed homes and then rent them; in some states this has accounted for upwards of twenty percent of all new house purchases. Having undermined the housing market with their “innovations,” notably backing subprime and zero down loans, they now look to profit from the middle orders’ decline by getting them to pay the investment classes’ mortgages through rents.

Part of this shift has been exacerbated by the movement of large investment groups like Blackstone to buy up single family houses for rent, representing a kind of neo-feudalist landscape, where landlords replace owner occupiers, perhaps for the long-run.

The very idea of homeownership is widely ridiculed in the media as a bad investment and many journalists, both left and right, deride the investment in homes as misplaced, and suggest people invest their resources on Wall Street, which, of course, would be of great benefit to the plutocracy. One New York Times writer even suggested that people should buy housing like food, largely ignoring the societal benefits associated with homeownership on children and the stability of communities.  Traditional American notion of independence, permanency and identity with neighborhood are given short shrift in this approach.

This odd alliance between the Clerisy and Wall Street works directly against the interest of the middle and aspiring working class. After all, the house is the primary asset of the middle orders, who have far less in terms of stocks and other financial assets than the highly affluent. Having deemed high-density housing and renting superior, the confluence of Clerical ideals and Wall Street money has the effect on creating an ever greater, and perhaps long-lasting, gap between the investor class and the yeomanry’.  (End)

INCREASE OF SQUARE FOOTAGE IN HOUSING SINCE THE 40’S AND 50’S

“Why Canada’s houses are getting smaller”, Tristin Hopper, National Post, July 13, 2012 (shrinking-home)

‘From post-war bungalows to 1990s McMansions, the Canadian House has spent the last 60 years progressively ballooning into one of the largest domiciles in history….In 1947, to accommodate a wave of post-war home construction, houses were often no bigger than 1,000 square feet.  Then came powder rooms, family rooms, enclosed garages; by 1975 home sizes had jumped to 1,075 square feet.  But still, their children, the Baby Boomers, shared bedrooms and cope with the weekday morning ritual of waiting for a spot in the home’s only bathroom.

Crazed for elbow room, when the Boomers finally seized the reins of home ownership in the 1980s, all hell broke loose.  Wide hallways, gargantuan entrance halls, mud rooms.  By the turn of the millennium, Canadians lived in some of the world’s largest houses – and were filling them with some of the world’s smallest families….

But then, by 2007, the meteoric growth of Canadian houses began to a slow to a trickle…the average new home size had dropped to 1,900 square feet – well down from a mid-2000s peak of 2,300 square feet….over the years, lot sizes stayed pretty much the same, but builders added storeys, dug out basements and pushed the front steps to the sidewalk….Canada, too, is witnessing the slow death of walk-in closets, hobby rooms and even the once-ubiquitous living room…..

The Millennials, the generation born from 1983 onwards, enjoyed a childhood free of bunk beds or even shared bathrooms.  Growing up in plush mega homes undoubtedly helped them become, in the words of one author, ‘self-centered, needy, and entitled with unrealistic work expectations.  Oddly, it also spawned a group of people patently unimpressed with backyards and breakfast nooks….

Under current economic forecasts, Millennials are poised to spend their early adulthood decidedly less affluent than their parents.  They are also facing a housing market that has outpaced income growth for well over a decade….

Except, of course, in Alberta, in the land of $85,000 median wages and dirt-cheap housing lots, young families are still snapping up giant, single-family homes like it’s still 1985….Edmonton has more space per person than any major city in Canada….In Calgary, even the condos are 4,000 square foot ‘monsters’.’ (End)

WHAT DETERMINES HOW THE MIDDLE CLASS IS CREATED

Michael Lind, “Are We Still a Middle-Class Nation?” The Atlantic Monthly 293, no. 1 (January/February 2004) (issues).

Michael Lind goes so far as to claim “each of America’s successive middle classes has been artificially created by government-sponsored social engineering—a fact that is profoundly important for us to admit as we think about the future of middle-class America.” (End)

Andrew Coyne: “Forget the Liberal mythology, Canada’s middle class is not struggling” (middle)

“This has always been implicit in Liberal rhetoric about “the one per cent,” but now it is policy. If the rich have been “taking” from the middle class, then the Liberals want you to know they will take it back: a cut of one-and-a-half percentage points in the lower-middle bracket, paid for by an increase of four percentage points in the top rate of tax. Fairness demands nothing less.

Seldom have the politics of “gimme that” been expressed quite so nakedly. It is one thing to redistribute from rich to poor, or from the broader society to those on its margins. But the beneficiaries in this case are not the poor, or even the median: as the NDP helpfully pointed out, the $44,701 threshold at which the Liberal tax cut would kick in would benefit only the top one-third of tax filers.” (End)

CONCLUSION

Wants have changed, it seems new homeowners all want hardwood floors and granite countertops and will pursue those dreams and accumulate high debt even with out of reach house prices.

Many wealthy Canadians (mainly married or coupled person family units)  think they are only middle class, but own their homes outright, have multiple properties, recreation vehicles, winter in Arizona or Florida, and have huge net worth and assets. Many also have multiple income sources from their net worth and assets in their senior years.  Many will buy properties with their increased wealth to rent out to those at the bottom of the wealth pile.  The rent charged is set at levels of greed to not only cover the mortgage and other costs, but also make 3 or 4% profit on their investments (affordable)

As stated above, 93% of Canadians believe they are in the middle class.  Yet MoneySense statistics presented above shows that 40% of Canadian families of two or more persons have incomes above $88,000 and have net worth and assets above $600,000.  THIS LAST STATEMENT BEARS REPEATING AGAIN.  Forty per cent of Canadian families have incredible wealth and yet think it is okay to lie to themselves and other Canadian singles and poor families about their wealth. They continue to spin these lies and this spin is perpetuated by government and politicians.

As has been shown in past blog posts, government and politicians have created upside side down and schizophrenic financial policies that benefit upper middle class families more than ‘middle of the road’ middle class families, singles and the poor (government-program).  Baby boomers and families because of their voting power are considered to be more financially important than other generational persons such as millennials.

What’s the point of hard work and common decency if the financial system is stacked against singles and the poor?  The values that have actually enriched the wealthy and upper middle class appear to be greed, over consumption, arrogance, dishonesty and telling lies upon lies upon lies about their wealth (especially with regards to affordable housing) .

‘Hard working’ phrase is used ad nauseum, but many middle class families  think they should not have to work til age 65 due to a sense of entitlement.

Even with having one of the highest standards of living in the world,  middle class Canadian families are still unhappy and want more and appear to have no qualms about financially discriminating against the lower middle class, singles and the poor.

(This blog is of a general nature about financial discrimination of individuals/singles.  It is not intended to provide personal or financial advice.)

STAGNANT MINIMUM WAGE AND LOW INCOME IMPACT ON CPP ENHANCEMENTS

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STAGNANT MINIMUM WAGE AND LOW INCOME IMPACT ON CPP ENHANCEMENTS

(These thoughts are purely the blunt, no nonsense personal opinions of the author about financial fairness and discrimination and are not intended to provide personal or financial advice.)

Occasionally there are events or things in life that will ‘rock you to your core’, ‘knock your socks off’, or ‘set you back on your heels’.  On writing for this blog, one of these things or events is the minimum wage or low income and what an impact this has on financial lives of the poor and low income regards to proposed CPP enhancements.

From Department of Finance, “Background on Agreement in Principle on Canada Pension Plan Enhancement” (fin.gc) for proposed enhancement of CPP states the following:

‘Today, middle class Canadians are working harder than ever, but many are worried that they won’t have put away enough for their retirement.  Each year, fewer and fewer Canadians have workplace pensions to fall back on.  To address this, we made a commitment to Canadians to strengthen the Canada Pension Plan (CPP) in order to help them to achieve their goal of a strong, secure and stable retirement……

There will be gradual 7-year phase-in below the Yearly Maximum Pensionable Earnings (YMPE), followed by a 2-year phase-in of the upper earnings limit….

The maximum amount of earnings subject to CPP (from 2023 to 2025) will be increased by 14%.  The upper earnings limit will be targeted at $82,700 upon full implementation in 2025…..

In 2023, the CPP contribution rate is estimated to be 1% higher for both employers and employees on earnings up to the YMPE.  Beginning in 2024, a separate contribution rate (expected to be 4% each for employers and employees) will be implemented for earnings above the then prevailing YMPE.

All working Canadians will benefit from an enhancement of the CPP. This enhancement will increase income replacement from one-quarter (25%)  to one-third (33%) of pensionable earnings.

As the CPP enhancement will be fully funded, each year of contributing to the enhanced CPP will allow workers to accrue partial additional benefits. In general, full enhanced CPP benefits will be available after about 40 years of making contributions. Partial benefits will be available sooner and will be based on years of contributions.’

The following information regarding the middle class has been taken from (theglobeandmail):

‘A 2013 internal government document, entitled “What We Know about the Middle Class in Canada,” draws the lines more precisely, deeming the middle class as those whose after-tax income falls between 75 per cent and 150 per cent of the national median – which, using 2012 figures, would include any family taking home $54,150 to $108,300 a year.  “Family,” however, is a catch-all demographic that includes couples of all ages, with or without children, single or double-earners, and single parents. Single people are excluded entirely – one of the fastest growing groups in Canada and a big chunk of the middle class – whose income, using the same government calculation above, would fall between $21,150 and $42,300…..This is one reason why so many millionaires (44 per cent of those who responded to a recent survey by CNBC) outrageously define themselves as middle class when, in fact, once your personal income closes in on $200,000, you leap into the top 1 per cent of earners in Canada….(and top twenty per cent have salaries over $116,000).

Average income (before taxes and transfers) by quintile, all family types, 2013

  • Lowest: Up to $13,000
  • Second: $13,100-$37,000
  • Middle: $37,000-$66,500
  • Fourth: $66,500-$111,600
  • Highest: $111,600 and up

Source, Income Statistics Division, Statistics Canada

What the numbers say: Income levels have fluctuated over the last four decades, with lasting growth concentrated among the wealthiest. In 2011, the incomes of the bottom three quintiles were still lower than in 1976, adjusting for inflation. The top 40 per cent had jumped ahead, with the largest gains made by the top 20 per cent. Compared with 1976, they were the only Canadian households who saw their share of income rise….

What the numbers say: Between 1999 and 2012, the median net worth of Canadian families rose nearly 78 per cent, from $137,200 to $243,800. Most of this wealth is concentrated in housing, especially for lower-income groups. This new wealth wasn’t evenly distributed, however. Gains were higher, the wealthier the family. While median net worth grew by 107 per cent for the richest families, for the bottom 20 per cent it rose just 14.5 per cent. Within the middle class, richer Canadians also did better – the upper middle income saw their worth grow by 90 per cent; the lower middle income by 60 per cent…..

Baby boomers are working longer than expected, debts are rising, and grandma’s housing bonanza is pricing her grandchildren out of the real-estate market, especially in big cities where the best jobs are increasingly concentrated. Paul Kershaw, who studies generational equity at the University of British Columbia’s School of Population and Public Health, has calculated that Canadians in their late 20s and early 30s will have to save, on average, five years longer to produce a down payment, and work one month a year more than their peers in 1976 to cover their mortgage. And according to a June report from the Canadian Centre for Policy Alternatives, thirty-somethings are the only age group with a lower overall net worth in 2012 than they had in 1999…..’

READER COMMENT on above article:

‘This is the reality of Canadians in their twenties and thirties.  They are buffeted on the one hand by a regressive Service Sector (Service Sector-more than fast food outlets- includes banking, insurance, and information technology) senior management style reminiscent of pre industrial revolution feudal management and owners who believe that the 15% federal tax is excessive and should be demolished.  On the other hand these all important Canadians under forty years are hopelessly burdened by the same senior management who are responsible for policy that has created unmanageable long term student debt, unconscionable large mortgages with no long term rate matching to amortization and no defined benefit pension plans….the existing Bank Act and Insurance Act as well as Competition Law provides ample power for an enlightened government to bring fairness to our most important asset – Canadians under forty years old’.

MoneySense (middle-class)data based on Stats.Can. 2011 figures – Middle 20% pre-tax income for unattached individuals is $23,357 to $36,859 and for families of two or more $61,929 to $88,074.

In 2013, Stats.Can. data shows median after-tax income for unattached singles over 65 to be $25,700 and under 65 to be $29,800.  For female lone parent families $39,400, for two parent families with children $85,000 and senior families $52,500.

Living Wage Dollars (politicians) (a basic wage that keeps poor working Canadians off the streets) for 2013 Guelph, Wellington and 2012 Grande Prairie range from $19,284 to $25,380 for unattached singles and $56,796 to $62,844 for two parent, two children family unit.  Living Wage for Guelph/Wellington for 2015 has been set at $16.50 for family unit of two parents and two children. The City of Vancouver employee living wage for 2016 is $20.64.  The calculated living wage for Toronto family unit of four for 2015 is $18.52.

Minimum wage in 2015 (minimum) in provinces looked like this – British Columbia $10.25, Alberta $10.20 ($11.20 in Oct. 2015), Saskatchewan $10.20, Manitoba $10.70, Ontario $11.00, Quebec $10.35, New Brunswick $10.30, Nova Scotia $10.60, Prince Edward Island, $10.35, Newfoundland $10.25, Yukon $10.72, Northwest Territories $10.00, Nunavut $11.00.  For 2016, provincial minimum wage ranges from $10.65 to $13.00.  Very few provinces index minimum wage to inflation.  The Alberta NDP party who came into power in 2014 promises to raise minimum wage to $15 by 2018.

The following table shows CPP contribution and benefit rates from 1987 to 2025.  Future proposed rates are shown in yellow.  It is interesting to note that the maximum CPP pension payout does not equal 25% of the YMPE.  Rather it seems to average around 24%.  Where did the remaining dollars go – perhaps for administrative costs?  Payout for 2025 has been calculated at 32% rather than 33%.

cpp-enhancements

ANALYSIS

  1. Minimum wage or living wage in relation to CPP enhancement – A minimum wage averaging between $10.00 and $11.00 in Canada or approximately $20,000 and $22,000 annual wage for 2,000 worked hours per year means these employees working for forty years will receive virtually nothing in CPP payments in comparison to those employees whose maximum CPP YMPE will be $82,700.  If the estimated amount of CPP after forty years of contribution for $82,700 maximum YMPE will equal about $2,000 per month, then the CPP benefit for $20,000 annual salary could be estimated to be 25% or $500 per month.  Even with a living wage of $20.00 per hour or $40,000 annual salary for 2,000 worked hours will possibly only equal 50% or $1,000 (equivalent to rent or mortgage) CPP benefit per month.  Just what incentive is there for the poor and low income to work when the YMPE will rise to a level that is higher than the middle quintile income of  $37,000-$66,500 and when one of the criteria is working for forty years?  While it is understood that incomes will likely rise over the next forty years, past history has shown that it will repeat itself by not increasing the minimum wage to a living wage equally in proportion to CPP contributions and benefits.  Ever singles and early divorced singles without children deserve better when they  have worked for forty years, never used EI, never used family benefits like maternity or parental benefits, child rearing dropout credits, child benefits and widowed person benefits along with all the marital manna benefits (pension splitting). Question to be answered:  Will the minimum wage along with OAS and GIS rise to same level that CPP YMPE will rise and will they be indexed to same level (33% would be nice) so that CPP, OAS and GIS benefits for the poor and low income will be at least a living wage level throughout their senior lives?
  1.  Upper-middle class will benefit the most while the poor and low income Canadians have been left out of the formula – Politicians and governments continue to coddle the middle class and especially the upper-middle class (so stated by financial government officials themselves in above article “middle class Canadians are working harder than ever”).  The Canadians who will benefit the most from the proposed CPP YMPE are the top two quintiles earning $82,000 and up per year (fourth quintile $66,500-$111,600 average income for all family types as shown in above statistics).  As the CPP YMPE rises at a level that is exponentially higher than the average income level of the middle class, so will the CPP payouts rise at a level that is exponentially higher for the upper middle class.  In the table shown above, the yearly YMPE has risen at a relatively steady rate for each year.  Examples:  The YMPE rose $600 for years 2000 to 2001, $1,200 for 2015 to 2016 and proposed $1,100 for 2022 to 2023.  The YMPE will take a dramatic jump of $7,100 ($67,800 to $74,899) for 2023 to 2024 and $7,800 ($74,900 to $82,700) for 2024 to 2025.  The YMPE, which used to be more ‘middle of the road’ middle class, will now rise to upper middle class levels just like all other defined benefit plans in this country, the higher the salary-the higher the benefit.   (Widowed persons of higher income deceased spouses also benefit more from these plans, but have not made contributions equal to the pension payouts, even though as widowed persons they are now technically single).  It almost certainly can be guaranteed that annual incomes will not increase by that amount for any of the lower income groups and especially for the poor and low income groups.  Pension plans in this country have been made schizophrenic and financially upside-down when they are controlled by the federal government, but minimum wages are controlled by the provinces, while ensuring the wealthy will get wealthier and the poor will remain poor.
  1.  Four things that need to happen to eliminate financial discrimination of CPP enhancements – What is the incentive for ever singles, early divorced singles and poor families to work when government, politicians and businesses purposely implement financial policies that work against them?? Four things need to happen – one. raise minimum wage to a living wage with indexing; two, exponentially increase indexing of OAS and GIS to same level of $82,700 CPP YMPE; three, eliminate marital manna benefits that privilege high income families such as pension splitting and revise programs such as OAS recovery tax so they truly do progressively eliminate OAS according to income for the upper-middle class; and four, review all retirement benefits and retirement programs in totality and with each other (both on federal and provincial level) to prevent creation of financial silos that privilege the wealthy few.

SOLUTION

In addition to the above four items, how about adding six years of CPP benefits to total years worked for singles (ever singles and early divorced singles, excluding widowers), equivalent to child rearing dropout credits? (Added Sept. 26, 2016 but then, singles already work forty years so that idea won’t work.  So how about applying the equivalence scale of 1.4 to the CPP benefits that singles have earned while working)?  It is a known fact that it costs unattached singles more to live (senior-singles-pay-more) than married or coupled family units.  The Canada Revenue Agency knows who singles are as they have indicate themselves as such on their income tax submissions.  Now, wouldn’t that be a novel idea to eliminate financial discrimination and promote financial fairness for singles?

(This blog is of a general nature about financial discrimination of individuals/singles.  It is not intended to provide personal or financial advice.)

CAUSE AND EFFECT OF FINANCIAL POLICIES PROMOTING FINANCIAL DISCRIMINATION OF SINGLES AND THE POOR

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CAUSE AND EFFECT OF FINANCIAL POLICIES PROMOTING FINANCIAL DISCRIMINATION OF SINGLES AND THE POOR

(These thoughts are purely the blunt, no nonsense personal opinions of the author about financial fairness and discrimination and are not intended to provide personal or financial advice.)

This blog has attempted to describe some of the many government, politician, business and family financial policy decisions that lead to financial discrimination of singles and the poor.

The question that can be asked is:  “Is there a  cause and effect relationship to these decisions?”

From Wikipedia and other online sources (study) the definition of ‘cause and effect’ is follows: – Causality (also referred to as causation, or cause and effect) is the agency or efficacy that connects one process (the cause) with another process or state (the effect), where the first is understood to be partly responsible for the second, and the second is dependent on the first. In general, a process has many causes, which are said to be causal factors for it, and all lie in its past. An effect can in turn be a cause of many other effects.

A cause-effect relationship is a relationship in which one event (the cause) makes another event happen (the effect). One cause can have several effects. Cause-Effect Criteria – In order to establish a cause-effect relationship, three criteria must be met. The first criterion is that the cause has to occur before the effect. If the causes occurred before the effects, then the first criterion is met.  Second, whenever the cause happens, the effect must also occur.  Consequently, if the cause does not happen, then the effect must not take place. The strength of the cause also determines the strength of the effect when criterion two is met.  The final criterion is that there are no other factors that can explain the relationship between the cause and effect.

A cause is why something happens.  An effect is what happens.

While no scientific ‘cause and effect’ relationship (i.e. fishbone diagrams) has been applied in this blog, certainly many of the financial discriminatory effects of policy decisions (or causes) have been described.  Some of these effects are listed below.

Boutique tax credits

  • Every political party has introduced tax credits to give financial benefits to certain members of the population more than others. June 16/16 (credit)

Business policies

  • Financial decisions by businesses such as not wanting to have minimum wage increase and not wishing to pay proposed increase of CPP employer contributions continue to help disintegrate the financial well being of singles and the poor. Sept. 12/16 (canada-pension-plan)

CPP

  • Financial discrimination of the CPP plan.  Aug 31/16 (plan)

CPP enhancements

  • Financial discrimination of CPP enhancements includes higher income earners only paying 8 percent instead of 11 percent CPP contributions on earnings between $72,000 and $82,700. Sept 12/16 (canada-pension-plan)

Family tax credits

  • Marital manna and family tax credits given over the years have continually increased the financial discrimination of singles and the poor.  Many of these benefits have been implemented by the Federal Conservative government over the last decade and perpetuated by the Federal Liberal party since coming into power in 2015 as well as provincial parties.  Aug 2/16 (credits)

Housing Affordability

  • Just 1,048 new affordable housing units in Calgary have been built over the past 14 years; the need for affordable housing was great in 2002 and it remains so today (most of these years were under provincial forty year reign of the Conservative party). July 17/16 (housing)
  • Homelessness – Two thirds of shelter beds in Canada are filled by people who make relatively infrequent use of shelters and are more likely forced into shelters by economic conditions (due to structural factors, the state of housing and labour markets that destine the very poor to be unable to afford even minimum-quality housing)…attacking housing affordability from the other side, by reducing housing costs, would also be effective….vast majority of homeless shelter users are single. May 23, 2016 (homelessness) and July 17/16 (housing)

Housing Upside Down Pricing and Financing

  • Upside down pricing of housing where purchasers of smaller units pay more per square foot means they will proportionately pay more house taxes, education taxes, mortgage interest and real estate fees on less house and less take home pay. Nov. 19/15 (upside-down)

Income tax privileging for the middle class and the wealthy

  • Tax cuts on both federal and provincial levels have targeted the middle class and the wealthy while making poor pay same amount or more in taxes.
  • Alberta flat tax of 10 percent increased from 8 percent for low income. May 23/16 (homelessness) 
  • Federal tax by federal Liberal party decreased by 1.5% for those earning between $45,282 and $90,563. Aug. 23/16 (family)

Lost Dollar value

  • Lost dollar value list was created to show lost dollars experienced by singles because married or coupled persons are able to achieve more financial benefits.  Some of these include pension splitting, reward programs and Employment Insurance (EI). April 10/16 (value)

Marital manna benefits

  • 1% spousal lending rate, spousal RRSP, TFSAs times two with no cap on total amounts accumulated over years are all within legal limits of financial laws – Six Reasons….(six)

Marrying for money pays off

  • Study shows persons who marry and stay married accumulate nearly twice as much personal wealth as a person who is single or divorced.  Jan. 17/16 (pays)

Maternity and parental benefits

  • Studies have shown that middle class and wealthy families benefit more from maternity and parental benefits.  Many poor families cannot afford take full maternity and parental leave.  August 23/17 (family)

Minimum wage/living wage

  • Decisions and arguments to not increase minimum wage or implement living wage have a dramatic impact on financial well being of singles and the poor.  May 4/16 (discriminatory) and Sept. 12/16 (canada-pension-plan)

Net worth and assets

  • When net worth and assets are not included in family benefit formulas, benefits are often given to those who need these benefits less (middle class and the wealthy) than the poor who have less net worth and assets.  August 17/16 (assets)

OAS recovery tax (OAS clawback)

  • OAS clawback benefits wealthy couples and some widows the most.  OAS for couples only begins at net income of $145,618 ($72,809 per person) thus allowing them to receive full OAS of $13,760 as a couple.  Not many senior singles (except some widowed persons) who could ever hope to achieve a net income of $72,809. Aug. 29/16 (oas)

Pension splitting

  • Pension splitting benefits only wealthy married or coupled family units.  Singles don’t get to pension split. Jan. 31/16 (government) and May 4/16 (selective).

Reward programs, company perks, money benefit programs, and fee schedules benefit families the most

‘Selective’ social democracy

  • There has been much that is good about democratic socialism, but there also has been some negative outcomes .  One outcome is ‘selective’ democratic socialism where certain members of society receive more social benefits than others. May 4/16 (selective)

Senior singles pay more

  • Senior singles often ‘pay more, get less’ because they are not included equally in financial formulas.  Singles also help support widowed persons and survivor pension plans. Dec. 22/15 (senior) and June 2/16 (retirement)

Singles not included or improperly identified in family definition

  • Ever singles (never married, no kids) are often not properly identified in family definitions.  Widowed persons and single parents are not ever singles.  Widowed persons and single parents are afforded some benefits that ever singles do not receive.  Dec. 2/15 (false) and Aug. 7/16 (definition)

CONCLUSION

It is very clear from the many examples above that government, politician, business and family financial policy decisions are often made in isolation and in financial silo fashion.  Continuation of these practises without a clear path to proper evaluation of all ‘across the board’ financial formulas and their ‘cause and effect’ on each other will only lead to perverse financial privileging of the middle class and wealthy while continuing financial discrimination of ever singles, early in life divorced singles, single parents and the poor.

(This blog is of a general nature about financial discrimination of individuals/singles.  It is not intended to provide personal or financial advice.)

CANADA PENSION PLAN ENHANCEMENTS WILL DO NOTHING TO ELIMINATE FINANCIAL DISCRIMINATION OF SINGLES AND THE POOR

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CANADA PENSION PLAN ENHANCEMENTS WILL DO NOTHING TO ELIMINATE FINANCIAL DISCRIMINATION OF SINGLES AND THE POOR

(These thoughts are purely the blunt, no nonsense personal opinions of the author about financial fairness and discrimination and are not intended to provide personal or financial advice).

The last post discussed how the CPP plan in its present format financially discriminates against singles and the poor.  CPP is part of the Pillar 2 plan of Canada’s retirement income system for seniors.  The last post (program) showed how Canadian seniors will not receive full CPP benefit if they have not made full work contributions for forty years and if they do not have full Yearly Maximum Pensionable Earnings(YMPE) contributions for those forty years.  Canadians most likely to not receive full CPP benefits are those who have not worked for forty years or have not been able to make full contributions because of low income.  Senior singles also pay more and get less in seniors benefits (pay-more).

Recently there has been much discussion about CPP contributions and benefits being enhanced because Canadians are not saving enough for their retirement.  Apparently, the enhancements will include increasing the amount of required CPP contributions and, in return, the amount of CPP benefits received.

Enhancements include:  Once fully implemented in 2025, the total CPP contribution rate (which is shared between employees and employers) will increase from the current rate of 9.9 per cent to 11.9 per cent of eligible earnings up to a maximum of $72,500. In addition, earnings between $72,500 and $82,700 will also be subject to mandatory CPP contributions at a lower rate of 8 per cent.

CPP retirement benefits will also be increased. The replacement rate for pensionable earnings will increase from 25 per cent to 33 per cent. According to the Department of Finance, it will take “about 40 years” for the full increase in retirement benefits to be phased in.  The Department of Finance has stated that like the current program, future benefits will be based on the years of contribution and actual contributions.

The significance of these changes is astounding.  Future benefits will remain the same based on the two principles of the years of contributions and actual contributions, in other words, same old, same old.  The premise remains the same – individuals with highest YMPE will receive the most CCP, while those at lower income levels will receive the least CPP benefits because they have not been able to make maximum CPP contributions.

The YMPE will be be raised to between $72,500 and $82,700 (up from $54,900 or approximately $25 per hour in 2016).  Based on approximately 2,200 hours of work per year, $72,500 equals approximately $33 per hour and $82,700 equals approximately $38 per hour.  In other words, the more income an individual makes, the more CPP benefits they will receive.

In 2013, the minimum wage was around $10 in all provinces. In constant dollars, this rate was similar to the rate observed in the late 1970s.  It is only in the last several years that the minimum wage has increased somewhat.   Historically, Alberta’s minimum wage went from $8 in 2007 to $9.95 in 2013.   In addition to the stagnant wage, the Alberta income tax rate in 1999 went from a graduated rate based on income to a flat tax of 10%.  The tax rate for  the middle class and wealthy was changed to 10% while the rate for lower income individuals went up from 8% to 10%.

The 10% tax rate remained in place for about fourteen years until 2015, when the NDP came into power and reverted the flat tax system to a graduated system.The current minimum wage rose to $11.40 in October 2015 and is set to rise to $12.20 in October 2016.  This is has all been a result of the NDP party coming into power in Alberta after a forty year reign by the Progressive Conservative party.

At the present time, the difference between Alberta’s minimum wage today of $12.20 per hour and the present CPP YMPE rate of $25 per hour is striking.  What this means is that the middle class and wealthy working for forty years will be able to attain greater CPP wealth than the person earning a minimum wage who has faithfully worked for 40 years.  Why wouldn’t those working at minimum wage be angry and in utter despair at policy decisions that don’t financially include them with fairness and equality?  If ordinary persons without math degrees can figure this out, why can’t government, policy makers and businesses?

In order for there to be financial fairness, the minimum wage has to rise at same rate as the increase  the CPP YMPE rate!  Think that is going to happen, don’t hold your breath!

PROBLEMS:  

  • Governments and businesses give many excuses as to why minimum wage should not be raised
  • Businesses don’t want to pay the proposed increases of their required CPP employer contributions because they say it will impact their businesses-they are threatening to go to contract and part time employees.
  • Currently only two provinces index their minimum wages based on the Consumer Price Index, thus offering guaranteed protection from wage erosion. Currently, there is no accountability for those actually determining the minimum wage.
  • With new proposed enhancements earnings between $72,500 and $82,700 will also be subject to mandatory CPP contributions, but at a lower rate of 8 per cent.  Why is it that higher income earners always get the reduced rates?  Why should those earnings between $72,500 and $82,700 get a lower rate of 8 per cent?  What is the factual basis for choosing a lower rate for income range between $72,500 and $82,700?
  • Minimum wage or a living wage and income tax rates are two very important factors that help determine quality of financial life for singles and the poor.  So why is that politicians, governments and businesses always give better rates to higher income earners (middle class and wealthy than lower income earners and to families over singles)?  Those at lower income levels are more often made to pay more while getting less.  Examples of this are increasing minimum wage at pitiful rates and making lower income earners pay the same income tax rate while decreasing rates for the middle class and wealthy as described above (Alberta Conservative government).   The present Liberal party did same by reducing taxes only for the middle class, but not reducing rates for the poor.
  • Upside down finances continue to be perpetuated (finances) so that the poor are forcibly made to remain poor by the upside down financial decisions by government and politicians.  Why don’t single persons deserve a full CPP benefit if they have been faithfully employed for forty years, (never used EI, never used maternity/paternity benefits, etc.) but have not been able to contribute full YMPE because of a lower income?

CONCLUSION

The policy decisions by government for CPP enhancements past and present have created a pillar whose base is cracked and breaking.  The only way most ever singles, early divorced singles, single parents and the poor can ever hope to reach the maximum CPP YMPE is by working multiple jobs.   Married or coupled family units may have the option of both spouses working and receiving two CPP pensions.  The indexing of a minimum wage or a living wage is paramount in avoiding financial discrimination in CPP enhancements for singles and the poor. To do anything less is a blatant violation of the human and civil financial rights of poor and low income Canadians.

THE MINIMUM WAGE IN CANADA

An excellent article “The Minimum Wage in Canada” by the Canadian Labour Congress, April 2015 gives an excellent perspective on minimum wage (minwage).

Some of the details of this article include the following:  

“A profile of minimum wage workers will show that the stereotypical teenage employee is not the reality and many individuals are struggling to provide for their families on minimum wage incomes. Common concerns about increases to the minimum wage, such as a rise in unemployment rates, the financial impacts on small business, and alternative policy changes to address poverty will be discussed in order to break down the myth that an increase to the minimum wage will have detrimental economic impacts…..

British Columbia froze its minimum wage at $8.00 an hour for almost a decade.  During this freeze period minimum wage earners were put under increasing financial strain as inflation restricted their ability to consume.  Currently only two provinces index their minimum wages based on the Consumer Price Index, and are offered guaranteed protection from this type of wage erosion….

There are two clear considerations that must be made when evaluating the adequacy of the minimum wage in Canada….Letting the real value of the minimum wage deteriorate just creates a cycle of poverty….

For those who oppose increasing the minimum wage in Canada, there are several arguments used to justify maintaining low rates. …The amount of people earning the minimum wage has remained under 10% of the total working population. This is not a large enough portion of the population to make a difference; if most people already earn above the minimum wage there’s no need to increase it. One thing often used to strengthen this argument is that, of the small number of minimum wage workers that exist, the majority are teenagers or students who are not attempting to support a family. Instead, they are working for personal money or for the experience and will soon move up the job ladder. The first major issue with this argument is that it blatantly accepts discrimination as a reason to pay someone low wages. Age is one of the prohibited grounds outlined in Section 15(1) of the Canadian Charter of Rights and Freedoms which guarantees all citizens equal and fair treatment under the law. To say that the wages of adults should be prioritized over the wages of young workers is a clear violation of this right. The purpose of setting a minimum wage is to create a sense of equality for vulnerable workers of all ages. Second, teens account for less than half of the minimum wage earners, so there are quite a few adults in Canada earning the lowest legal wages. Young adults may not have been active in the labour market for long but they are just that, legal adults who have financial responsibilities. Some do attend a post-secondary institute; however, that does not mean they are working out of choice. Not all young people have the financial support of their families to help them pursue their education. They rely on their paid employment to cover the ever increasing costs associated with education. ….The reality is that minimum wage earners are not one specific group of people and they definitely do not fit the stereotype of a few teenagers and students getting their first jobs. ….

The philosophy associated with our economic system is the constant need to keep costs as low as possible, which also means low wages for much of our workforce …. The theory is that as wages increase operation costs, employers are forced to find other ways to make up the difference. ….Although Canada’s unemployment rate has made some recovery since the 2009 recession, as of August 2014 it was still 7.0%…. Given the current economic climate, this argument suggests that the potential repercussions that increasing the minimum wage might have on unemployment rates, could seriously affect Canadian society. After examining the economic research available on the connection between unemployment and minimum wage increases, it is difficult to say with conviction how the two factors are related, if they are at all….. According to The World Bank’s World Development Report 2013: Jobs, there is no known universal impact of the minimum wage on unemployment rates. In order to say with certainty what the impact actually is, individual countries would have to closely monitor the labour market and compile vast amounts of research (World Bank, 2012). Our opinion on the matter is very similar. Based on the research that has already been done, there is too much contradicting evidence to say with confidence what the real effects on unemployment rates are.

A proposed alternative to increasing the minimum wage is to instead increase the basic personal tax exemption…..This policy does not introduce more money into the economy, it simply redirects it from government revenues to individual households. ….The redistribution of money does not make Canadians better off, it only continues to subsidize the low wages offered by employers…..

Minimum wage workers are more likely to be employed with a large firm than a small company; a troubling trend that requires further examination.  This recognition that large scale companies are more likely to pay the minimum wage than small businesses raises some serious concerns about who is utilizing minimum wage laws and why. ….However, some of Canada’s largest companies continue to offer many of their staff members only the minimum wage despite their recent success and profitability…..

Individuals earning low wages are the least likely to be meeting all their needs, so when their wages increase instead of saving their new income they use it to purchase the goods they have been lacking. This directly contrasts the wealthy who are more likely to save or invest additional income than inject it back into the local economy.

Minimum wage laws can actually benefit communities. Studies have shown that because individuals cannot afford to financially support their households on the minimum wage, they often turn to social services for assistance ….This means that the taxpayers are essentially subsidizing the low wages of a company that makes billions in profits. Additionally, when large firms move into an area and offer low priced goods, it drives down the wages of workers employed at small firms that need to reduce costs to stay competitive….. In some cases, not only will wages in the area drop but small employers will be forced to close—eliminating jobs altogether.

Even with most provinces attempting to conduct neutral reviews on the minimum wage rate, the final decision still remains politically motivated. One team of researchers found that, while the proximity of an election did not influence the decision to alter the minimum wage, the political ideologies of the government in power did. The New Democratic Party in particular were more likely to have a higher minimum wage rate in place than other parties (Dickson & Myatt, 2002). A 2006 study (Green & Harrison, 2006) found similar trends relating to the minimum wage and political agendas; conservative governments would let the minimum wage stagnate and centre-left parties would approve increases but neither were willing to make drastic changes. ….The issues at play when debating the appropriate minimum wage rate are complex, as it is not exclusively an economic policy….. Rather it is the ideology of “universal fairness” that generates support ….. This attitude is further portrayed by research that suggests the public perception of poverty is not to blame the victim. One study found that respondents, instead of citing the self-destructive behaviours of individuals like laziness and the inability to adhere to a budget, were more inclined to believe structural factors were the major contributors to poverty. This included social and economic factors like low wages (Love, et al, 2006). Individuals also recognized that employment no longer guaranteed people the means to escape poverty, as wages are often insufficient and, while workers are often willing to work more hours, full time positions are becoming more rare (Love, et al, 2006). The reality is that minimum wage policy is an economic, political, and social matter. As Canadians we must decide what we need from our minimum wage rates, then determine how to balance all these factors to achieve that goal. Decreasing wage inequality should be the first priority, as minimum wage policies have the potential to prevent extreme poverty. Increase the wages of other low paid workers and allow individuals to accumulate more financial support (World Bank, 2012). We must decide what quality of life we feel all Canadians deserve. Should full-time workers only be able to meet their basic needs like food and shelter, or are they entitled to a lifestyle that also considers their social and political well-being when determining basic living standards….? It is not possible to set the minimum wage based solely on economic factors because these broader social implications are the end results for Canadians.

Currently, there is no accountability for those actually determining the minimum wage.

This is not an issue that only affects businesses, so the human aspect needs to be given more priority in the minimum wage debate. While it is important for our economy to remain stable, we must also ensure the needs of workers are being met. They should be able to enjoy a certain standard of living; however, full-time employment is no longer a guaranteed escape from poverty. It is time to evaluate what our society deems fair, and compensate minimum wage workers accordingly. Raising the value of labour at the bottom, is a raise for everyone in Canada”.

(This blog is of a general nature about financial discrimination of individuals/singles.  It is not intended to provide personal or financial advice).

CANADA PENSION PLAN JUST ANOTHER GOVERNMENT PROGRAM PROMOTING FINANCIAL DISCRIMINATION OF SINGLES AND THE POOR

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CANADA PENSION PLAN JUST ANOTHER GOVERNMENT PROGRAM PROMOTING FINANCIAL DISCRIMINATION OF SINGLES AND THE POOR

(These thoughts are purely the blunt, no nonsense personal opinions of the author about financial fairness and discrimination and are not intended to provide personal or financial advice).

(singles-need-to-learn-how-to-articulate-financial-discrimination-of-singles)

Our last post discussed the financial discrimination of Old Age Security (OAS).  This post discusses the financial discrimination of the Canada Pension Plan (CPP).

CPP is part of the Pillar 2 plan of Canada’s retirement income system for seniors.  Some of the attributes of the plan are:

  • Federal government and Provinces are joint stewards of the CPP
  • Provides retirement, survivor, and disability benefits
  • Universal coverage of all workers in all industries
  • Employees and employers make equal contributions (4.95% each – 9.9% combined in 2015?) on earnings up to annual maximum of $54,900 (2016)
  • Defined Benefit – up to 25% of the average wage
  • Fully portable
  • Inflation-indexed to CPI
  • Actuarially sound for the next 75 years
  • The maximum CPP benefit for 2016 is $1,092.50 per month.

Unfortunately, most Canadians do not realize that the average Canadian will not receive the maximum CPP on retirement.  In fact, most will only receive about $643 per month of CPP maximum.  Why is this so?

Jim Yiu from ‘Retire Happy’ in his article “How much will you get from Canada Pension Plan in Retirement?” states (words in italics are my words):  

‘When planning for retirement, the first piece of advice given is not to plan on getting the maximum.  When you look at the average payout of CPP, it’s just a little over $643 per month in 2016, which is a long way from the maximum. In other words, not everyone gets the maximum. At the most basic level, the amount you get from CPP depends on how much you put into CPP.

Why is it that so many people do not qualify for the maximum amount of CPP? The best way to answer that is to look at how you get the maximum retirement benefit. Eligibility to receive the maximum CPP benefit is based on meeting two criteria:

  1. Contributions – The first criteria is you must contribute into CPP for at least 83% of the time that you are eligible to contribute. Essentially, you are eligible to contribute to CPP from the age of 18 to 65, which is 47 years. 83% of 47 years is 39 years. Thus, the way to look at CPP is on a 39-point system. If you did not contribute into CPP for at least 39 years between the ages of 18 to 65, then you won’t get the maximum. If so, then you might get the maximum but there is another consideration.
  2. Amount of contributions – Every year you work and contribute to CPP between the age of 18 and 65, you add to your benefit. To qualify for the maximum, you must not only contribute to CPP for 39 years but you must also contribute ‘enough’ in each of those years. CPP uses something called the Yearly Maximum Pensionable Earnings (YMPE) to determine whether you contributed enough. (For 2016 the YMPE is $54,900 – EQUIVALENT TO ABOUT $25 PER HOUR).

Basically if you make less than $53,600 of income in 2015 ($54,900 in 2016), you will not contribute enough to CPP to qualify for a point on the 39-point system…..As you can see, it’s not easy to qualify for full CPP especially with the trend of people entering into the workplace later because of education and people retiring earlier.  If you have 39 maximum years of contribution you’ll get the maximum CPP amount. If you have 20 maximum years of contributions you will get approximately half the maximum (you might get some partial credits for part years).

Planning your retirement needs and income requires some understanding of how much you will get from CPP. Many people either assume they will get the maximum or assume they will get nothing at all because they fear the benefit may not be there in the future. Both these assumptions have significant flaws. Take the time to personalize the planning by understanding how the CPP benefit is calculated and how much you will receive.’

ANALYSIS

Reasons why CPP is financially discriminatory to singles with low/moderate incomes and the poor:

    1. The YMPE 2016 salary to get maximum CPP benefits is $54,900 (up $1,300 from last year).  If average annual hours of work equals 2,200 hours then YMPE salary will be approximately $25 per hour.  Many singles and the poor do not have $25/hr. jobs.  In addition politicians, government, and businesses generally refuse to increase the minimum wage or ensure a living wage for all Canadians. If the YMPE is increased by $1,300, why aren’t the wages increased by the same amount for the poor so they can also contribute more to CPP?  Even those persons who work faithfully at full time jobs for forty years, but don’t have $25 per hour jobs will not receive full CPP benefits.  (Is this really what they deserve after working faithfully for their country for forty years)?  So who benefits most from CPP?  It is the middle class and wealthy who have at least $25/hr. jobs and, therefore, are able to get full  CPP benefits.
    2. Early retirement – who gets to retire early?  It is generally the upper middle class and wealthy married or coupled family units because of the marital manna benefits they receive, high incomes and the net worth they have.   In reality many of these families really do not need full CPP benefits.  From personal experience of this blog author, some married or coupled spouses will say both spouses do not need to work when really both spouses should be working or because of their high income only need one spouse working.  (To get full  CPP benefits each Canadian born citizen needs to contribute into CPP for at least 39 years between the ages of 18 to 65.   And, Canadians must not only contribute to CPP for 39 years but they must also contribute ‘enough’ to maximum of YMPE in each of these years).
    3. Marital manna benefits – Married or coupled family units have received many marital manna benefits that allows them to achieve more wealth than many singles and the poor.  One such example is the Child Rearing Drop-out Benefit.  CPP benefits may be increased for years that spouse did not generate income because of staying home to rear child from ages 1 to 6.  This is not necessarily a bad thing in and of itself, but those who are more likely to be able to stay home for child rearing are those with healthy incomes.
    4. Perception of financial  need –  Many politicians, governments, and financial planners have misconceived perceptions that financial goals should be for Canadians to have equal or higher pension income than while working.  In other words, if poor, it is okay to always be poor even in retirement.  For middle class or wealthy they say the goal should be equal or more pension income than working income even with high net worth and assets.  In reality, institutions like the OECD states less wealthy need 100% retirement income  of working income, while wealthy need retirement incomes that are much less of working income.  What is left out of these perceptions is quality of life.  Equal or higher pension income than income while working for singles with low/moderate incomes and the poor especially if paying rent or mortgage in retirement often does not equal a good quality of life.
    5. Proposed enhancements to CPP contributions and benefits – Proposed enhancements where CPP retirement pensions will be higher if taken after age 65 and./or will be higher if person works past age 65 are very good things. However, it is likely that singles and the poor are not the ones who will be able to postpone receiving their CPP benefits, and it is also more likely that singles and the poor are the ones who will need to work longer.  As for increasing CPP contributions now so that CPP benefits can be increased in the future, this generally is a good thing; however, the stress of having to contribute more will be more financially distressing for singles with low and moderate incomes and the poor rather than the middle class and the wealthy.

CONCLUSION

It seems to be more important for politicians and governments to ensure that upper-middle class and wealthy maintain their standard of living than it is to treat ever singles, early divorced singles, single parents and the poor fairly in benefits they receive (cpp).

Upside-down financial systems (upside-down) and marital manna benefits have created a nanny state where married/coupled persons want it all and once these benefits are in place, it is very difficult to eliminate them because of voter entitlement.  Upper middle class and wealthy married/coupled persons have been made irresponsible by their own politicians and government.  Many are not living an equal life style in their retirement, but a much better lifestyle.  A further question is whether these programs will be financially sustainable because upper class and wealthy married or coupled family units have not contributed enough to pay for these benefits.

Much is required of all family units regardless of marital status to educate themselves on what their actual retirement income will be.  If you don’t work, you won’t get CPP.   You won’t get CPP if you don’t work.  You won’t get CPP if you don’t make CPP contributions, for example, working ‘under the table’.  (And, wouldn’t it be nice for parents to pass this financial information onto their children so that their children will also make wise financial decisions)!  Much is required of financial planners to educate themselves on quality of life issues, not just equal or higher pension incomes.  Much is required of politicians and governments to educate themselves on how financially discriminatory many of the pension benefits are and to make changes so that there is financial equality and fairness in distribution of pension benefits for every Canadian,not just middle class married or coupled family units and the wealthy.

(This blog is of a general nature about financial discrimination of individuals/singles.  It is not intended to provide personal or financial advice).

OAS CLAWBACK OUTRAGEOUSLY BENEFICIAL TO UPPER MIDDLE-CLASS MARRIED OR COUPLED SENIORS, BUT FINANCIALLY DISCRIMINATORY TO SINGLES AND POOR

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OAS CLAWBACK OUTRAGEOUSLY BENEFICIAL TO UPPER MIDDLE-CLASS MARRIED OR COUPLED SENIORS, BUT FINANCIALLY DISCRIMINATORY TO SINGLES AND POOR

(These thoughts are purely the blunt, no nonsense personal opinions of the author about financial fairness and discrimination and are not intended to provide personal or financial advice).

(six-reasons-why-married-coupled-persons-are-able-to-achieve-more-financial-power-wealth)

Occasionally, there are topics that give one pause resulting in questioning as to the efficacy of the  formulation behind the topic.  The OAS Clawback (proper name is OAS Recovery tax as per Canada Revenue Agency) and the financial discriminatory properties behind the program is one such topic.  One way to resolve the questioning is to look at the topic in detail.

OAS is a federal social program designed to provide a very modest pension to low- and middle-income retirees.  It is part of the universal government benefits for seniors (pillar 1) to ensure income security for senior Canadians.  In 2016 the OAS maximum amount is $6,680 for a single person and $13,760 for a couple. OAS clawback which began around 2011 does very little to clawback the income of upper middle class persons, particularly married or coupled family units.  The clawback of OAS benefits in 2016 starts with a net income per person of $72,809 (couple $145,618)  and completely eliminates OAS with income of $118,055 (couple $236,110).  The repayment calculation is based on the difference between personal income and the threshold amount for the year. The repayment of OAS is 15 percent of that amount.  All OAS is clawed back if personal income is over $118,055.

According to Human Resource Development Canada, only about five percent of seniors receive reduced OAS pensions, and only two percent lose the entire amount.  This program benefits wealthy couples and widowers the most.  OAS clawback for couple only begins at net income of $145,618 ($72,809 per person) thus allowing them to receive full OAS of $13,760 as a couple.  There are not many ever single seniors, early divorced in life seniors and single parent seniors who could hope to achieve a net income of $72,809; however, for wealthy widowers this may be easier to achieve and they are the ones who complain about clawback.

An example of OAS clawback is the following example:  

The threshold for 2015 is $72,809.  If your income in 2015 was $80,000, then your repayment would be 15 percent of the difference between $80,000 and $72,809:

$80,000 – $72,809 = $7,191

$7,191 x 0.15 = $1,078.65

You would have to repay $1,078.65 for the July 2016 – June 2017 period.

Many financial advisors will give strategies on how to avoid the clawback while benefitting married or coupled family units the most.  This is just another example of financial marital manna benefits and manipulation of assets that within the legal limits of Canada Revenue Agency’s laws allows married or coupled person to increase their wealth (manipulation-of-assets).  This also is just another example of the upside finances perpetuated in this country by politicians, government and businesses that benefit married or coupled persons the most (quality-of-life).

From a financial advisor comes this statement (claw-back):  “I also want to put the impact of the claw back into perspective. Although no one likes to give up $6,600 in free money, it’s not like you were going to get to keep it all anyway. As the OAS is taxable, most people in the claw back zone would have paid back over 30% of it in taxes.

Secondly, some clients look at paying claw back as the cost of doing business; while they may not love it, they look at it as a price of their own financial success and as money they really don’t need anyway. Moreover, they might correctly see that in some cases combatting the claw back isn’t worth the effort. For example, although the rest of the article will focus on how dividends are often bad news for retirees trying to avoid the claw back, these same people might also be reluctant to modify their investments to produce other types of investment returns, especially if that means unnecessarily courting more investment risk or triggering a big capital gain in order to rebalance their portfolios”.

Limiting OAS Clawback

There are a few strategies you can implement to reduce clawback amounts (strategies):

  1. Split your pension with your spouse. If your spouse has a lower income, you can transfer up to 50 percent to your spouse, which should reduce your overall income. This could also include a Registered Retirement Income Fund and annuity income.
  2. Dip into your Registered Retirement Savings Plan before you turn 65. An RRSP is only a tax deferral, meaning that at some point, you’ll have to pay those taxes. Consider taking funds out before reaching the age of 65 so you do not lose the OAS.
  3. Use your tax-free savings accounts to generate investment income, which is non-taxable and would not count towards your net income.
  4. Interest on funds borrowed to earn investment income can be deducted and could reduce your net income.
  5. Watch for capital gains. If you are planning a sale of an asset that could trigger large capital gains, consider selling it before you turn 65.

From another financial planner (minimizing-clawback):  “At the end of the day, more people’s concern over OAS clawback will not be such a big deal simply because there are not a lot of people over the age of 65 making more than $72,809 of income. The people that do may have significant pensions or continue to work and earn and income over the age of 65. There will also be a group of people that trigger significant capital gains from the sale of second property or investments but the good news is they will only lose part or all of there OAS in the one year that the capital gains is realized and reported on the tax return. But if you happen to be one of the few that will get affected, make sure you plan ahead accordingly”.

CONCLUSION

The OAS clawback (implemented by Conservative party) is just another example of how politicians and government have ensured that senior upper middle class married or coupled family units with incomes between $72,809 to $118,055 net income per person will benefit more from the OAS government program. These same politicians and government agencies have financially discriminated against ever single seniors, early divorced in life seniors and single parent seniors by ensuring only five percent of seniors will receive reduced OAS pensions, and only two percent lose the entire amount.  Note we have specifically stated upper middle class married or coupled family units because wealthy married and coupled family units have already been excluded from receiving OAS pension by virtue of the $$118,055 (couple $236,110) net income limit.

To add further insult, politicians and government have ensured that the upper middle class will receive benefit upon benefit upon benefit to reduce the effects of the OAS recovery tax program.  The Liberal party (now ruling federal party) implemented a 1.5% reduction in income tax for incomes between $45,282 and $90,563.  These are middle class incomes, not incomes of the poor. Pension splitting is another program that reduces the possibility of OAS clawback.  As stated above, past governments have also ensured that marital manna benefits and ability to manipulate assets have been been given primarily to married or coupled family units all within legal limits of financial laws.  All of these benefits perpetuate an upside-down financial system where the upper middle class and the wealthy are able to achieve greater wealth than ever single, early divorced in life and single parent seniors.  In other words, the OAS Recovery Tax program (supposed to provide income security for poorer seniors) is a failed program which ensures greater wealth for the upper middle class and greater poverty for singles and the poor.

SOLUTION (added August 31, 2016)

Equivalence scales (scales) and net worth –  how many times can it be said over and over again that wealthy and upper middle class married or coupled family units are increasing their wealth by government programs designed to give more to these family units?  To correct this financial discrimination and upside finances for singles and the poor, equivalence scales and net worth need to be applied to these programs.  Monies saved could then be redistributed to the poor regardless of marital status.

(This blog is of a general nature about financial discrimination of individuals/singles.  It is not intended to provide personal or financial advice).

HISTORY OF FAMILY TAX CREDITS OVER DECADES ARE FINANCIALLY DISCRIMINATING TO SINGLES – Part 2 of 2

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HISTORY OF FAMILY TAX CREDITS OVER DECADES ARE FINANCIALLY DISCRIMINATING TO SINGLES – Part 2 of 2

(These thoughts are purely the blunt, no nonsense personal opinions of the author about financial fairness and discrimination and are not intended to provide personal or financial advice).

The August 2, 2016 post (decades) outlined almost all of the family tax credits that have been brought into play over the decades.  Many are financially discriminating because they leave  ever singles and early divorced singles out of the equations.  Single parents do receive some of these benefits for their children, but are not included in all the benefits afforded to having a spouse or partner.

family tax benefits over lifetime

The above table (updated Aug. 29/16) shows benefits available to a married or coupled family units with children from time they are able to use maternal and parental benefits to time of death of one spouse (yellow, blue and green fill in).  Single parents only have benefits related to their children (orange fill in).  Married or coupled family units without children have all the benefits related to having a spouse or partner (navy fill in).  Ever singles and early divorced singles, have none of the benefits available to married or coupled family units (fill in is blank because they have none of the benefits of spouse #2. In addition, they are often are unable to max out RRSP and TFSA contributions).  (While late in life divorced singles have none of the benefits for spouse #2, they may have been able to accumulate more net worth and assets while they had a spouse or partner).

Age categories of age 30 to 50 years are used to show suggested family unit of two children, one newborn and second child born two years later.  Life expectancy for Canadians is 80 for men and 84 for women so ages in table were calculated to age 85 assuming both spouses were still alive at age 85.

Estimation of the ADVANTAGES OF BENEFITS include the following:

Maternity and Parental Benefits

It is difficult to determine total number of Canadians who have receive EI benefits in a year as statistics seem to be based on month to month data.  However, there are studies that state annually about 25% of EI claimants receive maternity and parental benefits.  (Some parents may not receive these benefits if they did not contribute to EI or were not employed long enough receive any benefits).

StatsCan’s latest data on Employment Insurance recipients indicates Canada’s federal government (huffingtonpost) is growing stingier with EI benefits since Canada’s EI regime has been significantly toughened under Harper’s Conservative government. Changes that came into place include tougher, more complex rules for keeping EI benefits, and a new requirement that EI beneficiaries who have used EI frequently have to take any job available to them and accept as much as a 30-per-cent pay cut.

There is no such restrictions for maternal and parental benefits.  Although the benefits have a defined time limit (usually up to a year), there is no exhaustion of time limits for benefits for maternity and parental benefits as there is for regular unemployed persons (also can have benefits for multiple pregnancies).  While it is acknowledged that mothers go through stress of caring for a new infant, it should also be acknowledged that unemployed persons receiving EI go through stress of applying for EI and then constantly have to be looking for a job while EI benefits are running out and they have no money to pay for expenses.  Employees in EI offices are often not the most pleasant people to deal with.

Question:  do beneficiaries of EI (i.e. two or more children) use more benefits than other beneficiaries during working life of 35 years?  Present maximum EI contributions equal about $1,000 per year.  Over a 35 year period of working, contributions by a married or coupled family if both spouses are working is approximately $70,000 (this only holds true if each spouse is employed for 35 years each, many wealthier couples retire at age 60, not 65).  If a married or coupled family unit have two children with a maximum allowed $50,800 EI yearly insurable earnings at 55%, they will basically have used a large portion of the monies they contributed to the plan (with three children they will definitely likely have used all monies contributed).

Study ‘Benefitting from Extended Parental Leave’, March 2003, Katherine Marshall (statcan):  “Significantly more mothers who returned within eight months reported annual earnings below $20,000 in their previous or current job (49%) compared with those who returned after almost a year (29%) … this suggests that women with lower earnings (and possibly lower savings) may not be financially able to stay at home for an entire year on 55% of their earnings….Also, more likely to be a household where total income was under $40,000 (46%) compared with those who returned between nine and twelve months (38%)”.  Many families and family organizations are lobbying for the lengthening of maternal and parental leaves to two years.  It has to be stated once again that upside down financing ensures that more wealthy parents get to use full EI benefits than poor parents. Dollar value assigned for maximum maternity and parental EI benefits for two children equals approximately $55,880 ($50,800 X 55% X two children).

Canada Child Benefits – the outrageous discrimination of this program where net worth and assets has not been taken into consideration has already been discussed (poverty). Maximum annual Canada Child Benefits for 2016 are set at $6,400 per child ages one and up to six years and $5,500 for children ages 6 to 17.  Dollar value calculation using ‘middle of the road’ value (maximum values divided by 2) of $6,400 and $5.400 annually ($3,200 times five years times two children ages 1 and up to six equals approximately $32,000, $2,700 times 12 years times 2 children ages 6 to 17 equals approximately $64,800) equals a total of approximately $96,800.

Registered Education Savings Plan (RESP) – based on the amount of the RESP contributions and income level, the government may additionally contribute up to $7,200 per child as well as other grants. Dollar value for two children may total at least $14,400 of government benefits not counting other grants such as provincial grants.

Spousal Registered Retirement Savings Plan (RRSP) – allows a higher earner, called a spousal contributor, to contribute to an RRSP in their spouse’s name (it is the spouse who is the account holder).  A spousal  RRSP is a means of splitting income while working and during retirement and, therefore, possibly pay less tax. (It is not possible to calculate how much income tax might be saved).

Tax Free Savings Account (TFSA) – implemented in year 2009 with maximum contribution allowed per person of $5,500.  For years 2009 to 2016, the approximate maximum allowable amounts for spouse #2 is a total $42,000 (all tax free and not including monies generated from investments).  The Canadian Parliamentary Budget Office states “the TFSA program is regressive, overall, it offers no additional benefit to low- or middle-wealth households” (global) .  TFSAs for the wealthy are used as tax shelters.  It has been suggested that one half of Canadians have a TFSA account, but only half of those with the account have contributed to the account on a regular basis.  It is a well known fact that mostly wealthy Canadians have been able to contribute the maximum amounts to their accounts even in their senior years (another upside financial scheme to allow wealthier Canadians to gain even more wealth).  Many singles and poor families do not have the financial ability to max out their TFSA contributions.  Dollar value used for spouse #2-lifespan from age 30 to 85 years equals $5,500 time 55 years for a total of $302,500.

Income tax (federal) decreased by 1.5% for those earning between $45,282 and $90,563 – each spouse receives benefit of reduced income tax.  Using 2015 Canada Income Tax form, the calculated income tax for approximate income between $45,282 and $90,563 is $16,539.  A 1.5% tax reduction equals $248 annually.  The majority of ever singles and early divorced persons do not have incomes over $45,282, especially seniors. While middle class families with children get less of the Canada Child Benefit, this is offset by the reduced income tax. This is one benefit piled on top of another benefit.  Dollar value used for spouse #2 (assuming 55 working years) is $248 time 55 working years for a total of $13,640.

Pension Splitting – allows splitting of the pension income between spouses to reduce tax paid.  This strategy allows the spouse who has the highest income to lower his/her tax payable by sharing up to 50% of his/her pension income with his/her spouse.  Apparently 2.2 million Canadian seniors benefit from pension income splitting.   This may also allow the higher earner to receive the full OAS benefit without clawbacks.  Review of online data (Splitting) shows:  “of the $1.2 billion federal cost for pension splitting in 2015, $250 million of that cost is due to increases in OAS payments that wouldn’t have otherwise occurred. Hole. Wealthiest 10% of families get 31% of this benefit while bottom 50% of families get 2% of the benefits.  Single-parent families and Canadians living alone would gain no benefit from the creation of this tax loophole.   The gains from the pension income splitting loophole go disproportionately to the richest four deciles—the richest 40% of the Canadian senior population. In fact, the richer the senior family, the more it receives from this loophole. The poorer the senior family, the less support it receives. The poorest 10% of seniors receive an average of 10 cents in terms of a tax break from this loophole, whereas the richest 10% receive an average of $820 in perks. The richest 10% of senior families receive more benefit from this loophole than the bottom 70%. Looking at it from another vantage point, one out of five of the richest 10% of Canada’s senior families receive a cheque for over $1,000 from this program while three out of five make some gain from it. Of the poorest half of all senior families, only one out of every 1,000 seniors gets more than $1,000 from pension income splitting. Seven out of 10 seniors enjoy no benefit at all from this tax loophole. The poorest half of all senior families—they’re making less than $36,000 a year—receive only $2 out of ever $100 paid out by this loophole. In contrast, the richest 10% of senior families making over $85,000 receive $30 out of every $100 paid out. Most of the seniors in the bottom 40% of the income distribution are single women. As such, there is no one to split with and therefore no benefit from this loophole. The cost of this tax loophole is large and gets larger every year. While most of this program’s payouts are going to Canada’s richest seniors who don’t need extra support, there remain seniors who live below the poverty line.  In fact, to lift all Canadian seniors above the After-Tax Low Income Measure (AT-LIM) poverty line in Canada, it would cost approximately $1.5 billion a year—slightly less than Canadian governments are currently spending to support Canada’s richest seniors.  As with many government decisions, budgets are all about policy choices: in the case of pension income splitting, the political choice is to support rich senior families instead of lifting all seniors out of poverty – even though they both cost approximately the same.  While income splitting is often touted as a loophole for middle class Canadians, this study illustrates how in reality, it is actually a loophole for Canada’s richest families…..The richer the family, the more it stands to gain; the poorer the family, the more it stands to lose. Under any income splitting scenario, the bottom six deciles of Canadian families wouldn’t even get an equal share of the benefits”.  Dollar Value:  If the richest 10% receive an average of $820 in these perks annually, then $800 at 20 years from age 65 to 85 equals $16,000 in income tax savings not including the benefits received from OAS not being clawbacked.

OAS Clawback – the clawback of OAS benefits in 2016 starts with a net income per person $72,809 (couple $145,618)  and completely eliminates OAS with income of $118,055 (couple $236,110).  According to Human Resource Development Canada, only about five percent of seniors receive reduced OAS pensions, and only two percent lose the entire amount.  This program benefits wealthy couples and widowers the most. Essentially, there is virtually no clawback for the wealthy so no dollar value is calculated. No dollar value attached, but it is apparent that upside down financing prevails and wealthy families lose nothing-they get to retain their wealth.  The OAS Clawback benefit is basically a useless benefit.

Involuntary Separation Benefit –  in Involuntary Separation (spouse in nursing home), certain benefits may help pay for energy costs, and provides relief for sales and property tax and may also allow a portion of the Long-Term Care Home accommodation cost to remain with the spouse in the community. Qualifying under “Involuntary Separation” would allow both spouses to receive their pensions as single individuals (usually applies to low income seniors).  Not possible to calculate dollar value.

Survivor Benefits – benefits can apply to pensions including public pensions.  Details will not be discussed here and no dollar value has been assigned.

LOST DOLLAR VALUE TO SINGLES or looking at it in another way – Estimated Positive Dollar Value for married or coupled family units with two children

  • Maternal and Parental Benefits $55,880
  • Canada Child Benefits $96,800
  • RESP $14,400
  • Spousal RRSP (not possible to estimate dollar value)
  • TFSA $302,500
  • Income tax Reduction $13,640
  • Pension splitting $16,000
  • OAS Clawback (useless benefit as only richest 5% of Canadians get clawbacked-most married or coupled Canadians get to keep their OAS even with wealth)
  • Total $490,220

Estimated Positive Dollar Value for married or coupled family units without children

  • Spousal RRSP (not possible to estimate dollar value)
  • TFSA $302,500
  • Income tax Reduction $13,640
  • Pension splitting $16,000
  • Total $332,140

Estimated Positive Dollar Value for Single Parent with two children                    (added Aug. 24/16)

  • Maternal and Parental Benefits $55,880
  • Canada Child Benefits $96,800
  • RESP $14,400
  • Total $167,080

Estimated Positive Dollar Value for Ever Single and Early Divorced Singles  – Total $0 due to fact of no children and no spouse or partner (added Aug. 24/16)

CONCLUSION

New Canada Child Benefits if they continue in perpetuity for next twenty years implies that many middle class and wealthy married and coupled family units with children will receive benefits that equal the costs of raising children (estimated $250,000 per child) while growing their wealth.  Benefits on top of benefits and overlapping of benefits are most advantageous for married or coupled persons with children and without children.  Some benefits carry through all the way from age 30 to age 85.

While it is recognized that this exercise has only a gestimate of dollar values, there can be no doubt that many of the benefits (most initiated by the Conservative and perpetuated by the Liberal Party) continue to increase wealth for middle class and higher income married and coupled family units with and without children.  Singles parents only receive the child benefits.  Singles, single parents and poor families can never financially achieve same kind of wealth as married or coupled family units because they have been left out of financial formulas due to financial discrimination.  The political will is to support rich families instead of lifting singles and poor families out of poverty.

(This blog is of a general nature about financial discrimination of individuals/singles.  It is not intended to provide personal or financial advice).