Trudeau government has raised income taxes on majority of middle-class Canadian families
On the campaign trail Justin Trudeau promised to cut income taxes on middle-class Canadian families. Since becoming prime minister, he and his government have repeatedly claimed to have kept this promise.
For instance, the Trudeau government’s first budget in 2016 proclaimed “the government cut taxes for middle class Canadians everywhere.” And just last week, Prime Minister Trudeau made a similar statement to a global audience at the United Nations General Assembly.
But as is often the case, reality doesn’t match political rhetoric. In fact, despite the repeated claims from Ottawa, the Trudeau government has increased the amount of personal income taxes paid by the vast majority of middle-class families.
Before getting into the details, it’s important to note that cutting income taxes is a laudable goal. After all, the average Canadian family currently devotes approximately 43 per cent of its income to its total tax bill to all levels of government. So many families would welcome tax relief.
So what’s causing the disconnect between the government’s rhetoric and reality?
Immediately after coming to power, the Trudeau government reduced the second lowest personal income tax rate from 22 per cent to 20.5 per cent. This lowered the personal income tax rate for income earned between $45,916 and $91,831 (but anyone with income above $45,916 benefitted from this specific tax change).
However, the government also eliminated a number of tax credits—provisions in the tax code that reduce a person’s income taxes if they qualify for the specific credit. For instance, one of the tax credits eliminated was for children’s fitness. Previously, if a family spent money on their children’s fitness in a qualifying organization, part of those costs would be offset by a reduction in their tax bill. The elimination of several tax credits means that for those who previously claimed such credits, they’re income taxes increased.
The list of eliminated tax credits includes the children’s fitness tax credit, the education tax credit, the textbook tax credit and the public transit tax credit.
But the largest source of the increase to the middle-class family’s tax burden was the elimination of the income-splitting tax credit for couples with young children. Households with similar incomes can face very different income tax bills depending on who in the household earns the income. If a household has two earners at, say, $40,000 each, it would pay lower com¬bined income taxes than a one-earner household with the same amount of income ($80,000). In principle, households with similar incomes should face similar tax burdens and this tax credit worked, in part, towards that goal.
Eliminating the income-splitting tax credit effectively meant an average $949 tax increase on middle-class families—defined as families with incomes between $77,089 and $107,624. That same middle-class group only benefited $228 (on average) from the government’s cut to the second lowest income tax rate. Simply put, eliminating just the income-splitting tax credit more than offset the benefit of the tax rate reduction.
When you add in the effect of eliminating the other tax credits, more than 8-in-10 (81 per cent) of middle-class Canadian families will pay, on average, $840 more in personal income taxes this year because of the federal government’s tax changes.
First on the campaign trail, and then repeatedly in office, the Trudeau government has vowed to cut income taxes for Canada’s middle class, a goal with which we agree wholeheartedly.
The reality, though, is that its income tax changes, taken together, have had the opposite effect and actually increased the amount of income taxes the vast majority of middle-class families pay.
Authors:
Subscribe to the Fraser Institute
Get the latest news from the Fraser Institute on the latest research studies, news and events.