As the deadline approaches for filing income tax returns, the mainstream media revive the old myth that when it comes to taxes, the rich pay through the nose. One version of the myth dates back to April 23, 2005 when the Globe and Mail carried a piece with this snappy lead:
"They used to say make the rich pay. Well, they do. The top 10 per cent of Canadian wage earners carried more than half the nation's federal personal income tax load in 2002 -- 52.6 per cent -- up significantly from 1990."
The Globe's reporting was based on a set of misleading income tax figures supplied the day before by Statistics Canada. The flawed statistics have been repeated ever since. CBC Radio's economics reporter, Mike Hornbrook cited them this week as did the Vancouver Sun's Harvey Enchin in his April 9th column entitled, "Taxing the rich just doesn't work."
As an article in the July-August 2005 edition of This Magazine pointed out, Statistics Canada based its figures on tax-filers, (that is, anyone who submitted a personal income tax form), not taxpayers (people who filed their tax form and had taxes to pay). Millions of people who are too poor to pay income taxes, file returns to claim refundable credits such as the child tax benefit and the GST credit. Since the number of tax-filers greatly exceeds the number of taxpayers, the top 10 per cent in the StatsCan study earned $64,500 and up in 2002. And while incomes between $64,500 and say, $85,000 are comfortable ones, people earning them aren't really among the ranks of the rich. Including them in the top 10 per cent obviously inflates the apparent share of taxes paid by the richest among us.
In an October 2005 study published by the Canadian Centre for Policy Alternatives, tax expert Neil Brooks pointed to other flaws in the StatsCan report. He argued that the percentage of tax paid by the top 10 per cent had increased over the 12 year period of the StatsCan study because the incomes of the richest had risen substantially while the incomes of the poorest had fallen. "In fact, the increasing inequality in the distribution of income in Canada is the real story of the Statistics Canada analysis," he wrote. "It shows that the share of income earned by the top 10 per cent of tax-filers increased from 31.7 per cent in 1990 to 35.7 per cent in 2002, a 12.6 per cent increase. The share going to the bottom 50 per cent of tax-filers declined from 19 per cent of income for tax purposes to 16.9 per cent over the same period."
Brooks added that unlike low and middle-income Canadians, the highest income earners can reduce their taxes by deducting, for example, such things as interest expenses. They also receive non-taxable income such as accrued gains on shares and real estate, investment income on life insurance policies, inheritances and gifts etc. Moreover, many of those in high-income brackets can disguise personal expenses as business ones; engage in strategies to avoid taxes such as income-splitting schemes and tax shelters, and pursue tax evasion strategies such as hiding income in secret foreign bank accounts.
Brooks also pointed out that focusing solely on income taxes distorts the overall picture. Income taxes account for less than 40 per cent of the taxes individuals pay. When other taxes are taken into account --- such as sales taxes, property taxes and payroll taxes --- everyone pays about the same proportion of income. "All Canadian residents -- whether they earned $10,000, $100,000 or $1,000,000 -- pay somewhere between 30 and 35 per cent of their income in taxes of all kinds," he wrote.
Yes, incredibly enough, everyone pays about the same percentage of their income in taxes. The only difference is that the rich can rely on the media to spread the myth that they pay more.
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