Conventional wisdom is that we pay 50% of our income in taxes. That idea has been mindlessly bandied about as fact for as long as I can remember.
I just did my taxes, and the computer very kindly told me how much tax I'm paying in income tax. I'm paying a total of 18% of my income in taxes (my marginal tax rate is 30%, but obviously not everything is taxed at the marginal rate). So even if I spent every single dollar I earn on stuff that's subject to both sales taxes, that would be a total of 31% of my income in taxes.
My income falls between the median Canadian household income and the mean Canadian household income.
I don't have children, I don't have medical deductions, I don't have employment-related tax writeoffs, I don't have educational deductions, I don't claim my charitable donations. Basically the only deductions I claim are my RRSP contributions and my Metropass.
This would all suggest that most people are paying significantly less than 50% of their income in taxes. So where did the ubiquitous 50% idea come from?
Edited to add:
It occurred to me while I was putting on my makeup that this 50% idea might be responsible for our weak social safety net. It is a common misconception that people don't pay tax on social assistance benefits (in reality, it counts as income and is taxed if your income is high enough).
Suppose, for example, your gross income is $50,000 a year. And suppose you're under the common misconceptions that a) you're paying 50% of that in taxes, and b) government benefits are not taxable.
So someone tells you that Employment Insurance pays a maximum of $447 a week. You do the math and see that this is $23,244. But because you're under the misconception that you pay 50% of your income in taxes, you think your take-home is $25,000. And because you're under the misconception that EI isn't taxable, you think their take-home is $23,224. So you look at the situation and thinking that living on EI is no sacrifice whatsoever. But in reality, their take-home is less than that and your take-home is more than that, so there's a significant difference.
3 comments:
It is very strange. A Canadian guy once said that on my blog, and I demanded he explain to the USians present that it was untrue. He backpedaled, saying that he was counting GST and PST and this and that, all this other stuff that has nothing to do with taxes or income. Then he was never heard from again.
Where, where did this idea come from? It's like the Fox News version of Canada has infected popular Canadian culture.
Oh! Utilities! He was counting utilities. As taxes.
Utilities?? WTF? How do you even arrive there?
Hmmm...maybe he feels vaguely cheated when he pays his utility bill? Well, I feel vaguely cheated when I pay my Rogers bill. Therefore, I declare that a tax. And an unfair and unjust one that requires immediate tax relief so as to stimulate the economy.
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