Thursday, August 25, 2016

The Average Canadian Family’s Taxes

The Fraser Institute recently came out with a study of how the average Canadian family’s total tax bill hs changed from 1961 to 2015. The emotional impact of their conclusions exploits the fact that the “average” family is different from the “typical” family.

Before continuing with some criticism of this report, let me explain that I’m not on either extreme end of the often polarized debate on taxes. I’m no fan of government waste. Canada’s public sector does a poor job of removing employees who do their jobs poorly. This leads to an accumulations of poor employees and is demoralizing for strong public sector employees who must work alongside poor employees. All that said, I’m not a cheerleader for reducing all forms of public spending either.

When the Fraser Institute examines the “average” family’s income, they are adding up the incomes of all families and dividing by the number of families to get $80,593. If this figure sounds high, it’s likely because you are thinking of the “typical” or “median” family whose income is such that half of families make more and half make less. Most families make less than $80,593 per year, but smaller numbers of high income families drive up the average.

While the average family paid $34,154 in taxes in 2015, the typical family paid quite a bit less. The $34,154 figure is meant to inflame us, but it is mainly a reflection of the fact that people with high incomes pay a lot of tax. A more meaningful figure for most people would be how much the median family pays in taxes. Even more meaningful would be to give the taxes paid for each of several family income levels. That way you could look up your income and decide whether or not to be outraged by the total amount of tax you pay.

Another prominent conclusion of this report is that “The average Canadian family now spends more of its income on taxes (42.4%) than it does on basic necessities such as food, shelter, and clothing combined (37.6%).” We’re supposed to be angered by this fact, but there are two changes that led to taxes growing larger than the cost of necessities. One is that taxes rose, but the other is a positive thing: the cost of necessities has risen slower than our incomes since 1961.

I would be very happy to see Canada’s public sector become more efficient and consume less of our incomes through taxes, but the methods used in this report to make the case that taxes are high don’t sit well with me.

17 comments:

  1. Perhaps someone just read https://www.amazon.ca/How-Lie-Statistics-Darrell-Huff/dp/0393310728

    Like you, I'm all for more efficient use of our tax dollars, but using subterfuge to make one's case doesn't sit well with me...

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  2. Using statistics to sway public opinion is always fun.

    I agree with your views on the Public Sector as well.

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    1. @Alan: There's always some way to torture the numbers to suit a given point of view.

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  3. The Fraser Institute also ignores that the taxes paid provide universal health care, surely as much a "basic necessity" as food, shelter, clothing. Contrast that with the US$433 per MONTH that my US employer paid for my health insurance in April 2013 and the equal amount I paid for my husband. This "great" plan, by the way, had a $1,000 deductible, with a $30 co-pay (payment by me) for every office visit, plus 20% "co-insurance" (more payment by me) for every procedure, from removing moles to knee replacement. Even living in BC, a province with an insurance "premium" for health care, I'm grateful every day for the care provided to us!

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    1. @Deborah: Good point. It's easy to take health care for granted. Of course, we could stand to improve efficiency in health care. I've been told by insiders that hospitals employ an amazing number of people who never have any contact with patients.

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    2. I had occasion to observe administrative processes while my dad was in the hospital 3-4 years ago. I was amazed at the number of times a form was handled, stamped, etc. by staff before it was done with. The manual nature of their processes in this day and age shocked me.

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  4. 1. Median family income in Canada was about 79 thousand according to the 2014 census. It will be over 80 thousand today.

    2. Fraser institute clearly stated what they did, really not sure what manipulation you are on about.

    3. Average is clearly more suited to show how overall government expenditure has changed over time, as opposed to showing how they shift tax burden around.

    4. Say prices at Burger King grow four times as fast as they do at MacDonalds. Apparently BK are doing fine, it's just the comparison is unfair because MD are doing awesome. Interesting logic. In the real world BK are over.

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    1. @BHCh:

      1. Try working out the median family's tax burden and see how different it is from the average.

      2. You and I have different ideas of "clear".

      3. This report's readers are not meant to think about overall government expenditure but to think about their personal tax burdens.

      4. I see no relevance.

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    2. 1.It will be more than 42% in the study. Wealthy families will pay more overall in absolute terms but lower percentage of their total income than those with 80K incomes.

      4. You are justifying rocketing taxation by arguing that really it's all the other costs that are not growing fast enough. That's an interesting perspective.

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    3. @BHCh:

      1. Other Fraser Institute studies disagree with you. For example, see table 9 of https://www.fraserinstitute.org/sites/default/files/Tax-Freedom-Day-2016.pdf.

      4. I never wrote anything in this article aimed at justifying tax levels.

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    4. 1. The table indicates that top 10% pay a higher percentage on average. 90th percentile just gets us towards professionals who are taxed through the nose. How about top 1%? 0.1%? The table does not actually say anything about the median tax.

      I googled but couldn't find anything on "median family tax". Apparently nobody in the world uses your preferred measure.

      Still, someone earning 80K will pay over 20K in income taxes and - I am guessing - >30K once other forms of taxation are accounted for.

      4. "We’re supposed to be angered by this fact, but there are two changes that led to taxes growing larger than the cost of necessities."

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  5. Michael, you make some good points which I have to agree with. Breaking this comparison into quintiles for example could be more meaningful for families to review.
    I'm also for government becoming more efficient with our tax dollars, and would advocate a serious review of all employee productivity and value and most importantly take action where warranted. I suspect that rarely happens and is made more difficult in such a strong union environment. I am okay with the amount of taxes I've paid while working and in retirement but believe we should be getting more value in terms of service delivery, capital infrastructure investments and little to nothing should occur in debt interest costs. If not lower my taxes.

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    1. @RBull: If the public service workers I've met are any indication, you're right that meaningful reviews of productivity and value are rare. I recall that during the period when many public servants were made to reapply for their jobs, those affected seemed to view the process as arbitrary. They didn't seem to believe their competence level would make a difference. Maybe they were right.

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  6. @MJ: I have close ties to a number of civil and public servants. What you're saying jives with their views.

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  7. Another thing they do is sensationalize the growth in taxes since 1961 saying it is a 1600% increase roughly. While that is true, it makes you think that we are taxed 1600% more, when really it is just tracking the grown in dollars. They don't account for inflation at all, which makes up for most of that growth.

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    1. @Stephen: The figure is actually 1939%, but I agree this is intended to sensationalize. The frustration for me is that excessive public spending is a real problem. We need to focus on the root of the problem. Even if the Fraser Institute succeeds in forcing governments to reduce taxes, we'll just get more debt or they'll cut the services we need most. The real enemy is the vast waste that comes from employing the people who contribute little.

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