Sunday, April 03, 2011

Things They Should Study: income range for which additional tax credits would actually make a difference

All this election talk of tax credits makes me wonder how many people they're actually useful for.

People at the low end of the income scale hardly pay any tax anyway, and most of what they do pay gets refunded, so they wouldn't achieve any additional savings with additional tax credits.

But the more money you have, the more the savings from a tax credit become negligible. For example, I currently don't feel the tax credit I get for my TTC Metropass. If it disappeared, I wouldn't notice. However, I still feel my RRSPs. Someone who makes ten times what I make might not feel their RRSPs either.

Tax credits whose goal is to modify behaviour (fitness, home renovation) tend to apply for things that require a certain amount of disposable income. If your budget is so tight that you just can't find room for a kickboxing class or a new kitchen, you aren't going to be able to benefit from these.

And, of course, the more tax credits you already have, the less impact any additional tax credits will have. When I was in university, my tuition deduction and educational tax credits were huge (relative to my income at the time - now they'd be nothing more than a nice little bonus). But because of this, any additional credits would have been useless to me. I was already paying no taxes and getting money back, there was nothing left to deduct!

So someone should do research: for what segment of the population are tax credits useful, and for what segment are they useless? How big do they have to be? How many people have room for those kinds of expenditures in their budgets?

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