(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 – financialfairnessforsingles.ca).
Comment from blog author: We have commented in past blog posts about the controversy surrounding the definition of ‘what is the middle class?’
(WHO IS THE MIDDLE CLASS? AND FINANCIAL DISCRIMINATION OF SINGLES AND THE POOR)
This blog post shows that the Liberal Party has done nothing to resolve the financial struggles of the middle class. If the Conservative Party had won the 2019 election their promises also would not have helped the middle class. It is not difficult to understand why the anger of those in the bottom half contiues to increase when government and politicians continue to gaslight and lie about tax cuts that benefit the wealthy more than the poor and the married more than singles. As outlined below critics of the proposal have said middle-to-high income earners will receive the highest sums of money from the measure and cutting taxes will put an increasing strain on federal finances already facing annual multi-billion dollar deficits.
The following post is divided into three parts: 1) how Liberal ‘middle class tax cut’ will benefit married households more than single person households using OECD calculator. 2) excellent article by Andrew Coyne on “why the Liberal middle class tax cut is no tax cut at all” 3) details of the Liberal Middle Class Tax Cut (for additional information only).
1) OECD calculator shows how ‘middle class tax cut’ will benefit married more than single person households
OECD article states “Governments must act to help struggling middle class”
Across the OECD area, except for a few countries, middle incomes are barely higher today than they were ten years ago, increasing by just 0.3% per year, a third less than the average income of the richest 10%.
The link for this OECD article has an interesting application of OECD CALCULATOR (See where you belong by entering your details! Which income class does your family income fit in?) where the reader can enter details of country, number of persons in household and net income amount after taxes and benefits. (Caveat: Some might disagree with the OECD income ranges which are quite wide and high especially at the upper ranges of stated middle class incomes).
Explanations of the Calculator:
- Lower-income class refers to households with income below 75% of the median national income
- Middle-income class refers to households with income between 75% and 200% of the median national income
- Upper-income class refers to households with income above 200% of the median national income
According to this OECD calculator in Canada 58% of the population is in the middle-income class, 32% are in the lower-income class and 10% are in the upper-income class. On average, across OECD countries, 61% are in the middle-income class, 30% are in the lower-income class and 9% are in the upper-income class.
Between mid-2000s and mid-2010s in Canada:
- The share of the population in the middle-income class has decreased by -1.5 percentage points.
- The upper-income class has increased by 0.7 percentage points.
- The lower-income class has increased by 0.8 percentage points.
Example of single person household with $50,000 Alberta gross income or $39,000 after deductions
In the past we have shown that it is impossible for a single person household with a $50,000 gross income to save anything for retirement. As stated a single person with a 2019 $50,000 Alberta gross income ($25/hr. and 2,000 worked hours) and $11,000 tax, CPP and EI deductions results in a net income of $39,000 ($19.50/hr.). This is a bare bones living wage that does not allow for savings, vacations or entertainment. It is impossible to maximize $9,000 RRSP and $6,000 TFSA contributions (35% of $39,000 with tax reductions for RRSP) even though many believe $50,000 is a good income for unattached individuals and single parents.
When $39,000 net income is entered into the OECD calculator, it shows that the lower 32% of single person households have net incomes below $32,621, middle 58% have net income from $32,621 ($16 per hr.) to $86,990 ($43 per hr.) and upper 10% have income over $86,990. The median income is $43,495. The calculator further states: In Canada, a 1-person household would need between $32,621 and $86,990 per year to be in the middle-income class.
Example of two person household with Alberta gross income of $82,000 or $61,000 after deductions
(For this calculations we have used $61,000 median income for a two person household).
When $61,000 is entered into the OECD calculator, it shows that the lower 32% of a two person household have net incomes below $46,133, middle 58% have net income from $46,133 ($11 per hr. for two incomes dividided equally between two persons) to $123,022 ($31 per hr. for two incomes divided equally between two persons) and upper 10% have income over $123,022. The median income is $61,511. The calculator further states: In Canada, a 2-person household would need between $46,133 and $123,022 per year to be in the middle-income class
ANALYSIS AND CONCLUSIONS
The Liberal plan states that for top income earners the increase in the basic personal amount would be gradually reduced for individuals with net incomes above $150,473 (or approx. $235,00 gross income) in 2020. Meanwhile, those with incomes over net $214,368 would continue to receive the existing basic personal amount, which is tied to inflation.
Liberal Gaslight #1: The Liberal middle class tax cut goes beyond the middle class. Review of online information including OECD and CRA shows that the middle class parameters do no come close to $150,473, yet those with net incomes under $150,473 will receive the full tax cut.
Liberal Gaslight #2: How many times can it be said that it costs more for single person households to live than two person households?(According to the OECD the median income for single person household is $43,495 and for two person households $61,511). It costs more for singles to live than couples without children. Using OECD equivalence scales or Canadian Market Basket Measure if a single person household has a value of 1.0, lone parent, one child or two adult household has a value of 1.4, one adult, two children 1.7 and two adult, two children 2.0. The single person household will receive the tax cut benefits only for one basic personal amount, but two person households will receive double the basic personal amount benefits even with less income generated per person in the household.
When benefits are given equally to Canadians on an individual basis, the financial spread between single person households and two person households will become wider and wider with single person households being pushed further into poverty. Single person households are damned tired of being pushed into financial poverty by their own governments, politicians and their own families who either do not understand or care about the financial ramifications for their single children.
2)“Liberals’ ‘middle class tax cut’ is not a tax cut at all” (EXCELLENT ARTICLE!)
Andrew Coyne, December 10, 2019, Source The Globe and Mail, https://spon.ca/liberals-middle-class-tax-cut-is-not-a-tax-cut-at-all/2019/12/11/
The new Minister of Middle Class Prosperity was unable, in her first week on the job, to define the middle class with much precision or syntax. It’s “where people feel that they can afford their way of life,” Mona Fortier told CBC Radio. “They have a quality of life, and they can have, you know, send their kids to play hockey or even have different activities.”
In fairness, if the minister cannot define the file for which she pretends to have responsibility, neither can the government in which she notionally serves. Four years and two elections after they first started droning on about it, the best guess as to what the Liberals mean by “middle class” is “most people,” or more particularly, “most voters.”
Consider the latest “middle class tax cut,” promised in the platform and announced this week – a tax cut that is not a tax cut, and that applies to people who are not remotely middle class. For that matter, the basic personal exemption, which would be increased from $12,298 today to $15,000 in 2023, is not an exemption, really. It’s a credit – money you get from the government, not money you earn that the government leaves alone.
Have a look at your tax form. It’s not even called an exemption: It’s called the basic personal amount. Nor do you get to deduct it from your income, like an exemption. If you could, your tax owing would be reduced by the amount of the deduction times the top rate of tax you would otherwise have to pay on that income. Instead, policy makers saw fit to turn it into a credit, redeemable only at the 15 per cent bottom rate of tax. Basically everyone, rich or poor, gets a flat $1,884 ($12,298 times 15 per cent).
In other words, it’s a spending program, by another name. And since it applies to nearly everyone, an expensive one. Just to enrich it will cost the government another $6-billion a year, when fully implemented. It might have cost more, had the Liberals not added a wrinkle: The increase in the credit is phased out, starting at $150,473 in income; at $214,368, it disappears altogether, allowing the Liberals to say they have excluded the “richest” – the fabled 1 per cent – from its benefits.
And so they have. They’ve just included everyone short of that: the near-rich, the pretty rich, the rich, even the filthy rich, relatively speaking. Those eligible may not think of themselves that way: Virtually everyone, according to the polls, defines themselves as “middle class,” and why not when there’s money in it? But to actually be middle class, you’d have to be earning somewhere around $35,000 – the median income, according to Statistics Canada. Even if you defined middle class as, improbably, the “middle” 80 per cent of the income distribution, you’d still be earning less than $96,000.
A policy that pays out to people making as much as $214,368 may be many things, but it is not a middle-class tax cut. If the richest are excluded, moreover, so are the poorest. The credit is “non-refundable,” meaning it applies against taxes owing. If you pay no taxes, you get no credit. And if you are below the existing BPA, you gain no benefit from raising it further.
What we are left with is a $6-billion handout to just about everybody except those who need it most. And all of it is borrowed. With the deficit already in excess of $20-billion and headed higher, the government is proposing to borrow another $6-billion annually, and give much of it to people in the top half of the social register.
It’s one thing to borrow for investment – for things that pay returns into the future, enough at least to cover the extra interest costs incurred. But this isn’t for investment: it’s for consumption. You don’t have to do anything productive to benefit from the Liberal “tax cut.” You get it just for being you.
Suppose instead the money had been used to cut marginal tax rates: the rate that applies to the next dollar earned. That really would be an investment – a permanent and much-needed improvement in incentives to work and invest, at a time when labour and especially capital are in short supply, relative to the demands of an aging population.
Of course, to get much bang for your buck, you’d have to cut the top rates, since it’s those in the upper brackets who have most of the wherewithal to invest. And it’s the top rates that have reached confiscatory levels: north of 50 per cent, federal and provincial combined, in much of Canada.
Unthinkable: Tax cuts for the rich! Maybe. But it sure beats handouts to the rich, doesn’t it?
3)Details of Trudeau’s middle tax cut
Prime Minister Justin Trudeau has stated that the Liberal government will raise the basic personal income tax deduction to $15,000 for those earning under $147,000 — meaning would taxes would only be paid on income over that amount. Currently, the 2019 federal basic personal deduction is $12,069. The increase would be phased in, reaching $15,000 by 2023. It is estimated this will save an individual just under $300 a year, while families would save $585.
For top income earners the increase in the basic personal amount would be gradually reduced for individuals with net incomes above $150,473 in 2020. Meanwhile, those with incomes over $214,368 would continue to receive the existing basic personal amount, which is tied to inflation.
Trudeau said the tax cut would lift 40,000 people out of poverty and encompass about 700,000 more Canadians. It would cost $2.9 billion to start, increasing to $5.6 billion by 2023-2024.
Finance Minister Bill Morneau said the changes would mean 20 million Canadians will see a lower tax burden and 1.1 million more Canadians will pay no federal income tax at all and the average Canadian family would save close to $600 every year by the time it fully comes into effect.
Finance Canada projects the tax cut will leave federal coffers short $25 billion between now and 2024-25. By the time the changes are completed in 2023, the measure will cost more than $6 billion annually.
The independent parliamentary budget officer predicted the tax measures would cost nearly $24 billion in that timeframe. The analysis had assumed other Liberal proposals, such as an increase in the Canada Child Benefit, come into effect. It also did not consider changes to spouse or common law and dependent amounts.
Critics of the proposal have said middle-to-high income earners receive the highest sums of money from the measure and cutting taxes put an increasing strain on federal finances already facing annual multi-billion dollar deficits.
(This blog is of a general nature about financial discrimination of individuals/singles. It is not intended to provide personal or financial advice).