TAX FREEDOM DAY: Misleading Canadians about Amount, Purpose of Taxes They Pay

By Brooks, Neil | CCPA Monitor, July/August 2005 | Go to article overview

TAX FREEDOM DAY: Misleading Canadians about Amount, Purpose of Taxes They Pay


Brooks, Neil, CCPA Monitor


In an attempt to convince working people that Canadian taxes are unduly burdensome, right-wing think-tanks and conservative politicians have been exaggerating the level of taxes paid by Canadian families for years. Presumably, they see this as their best strategy for convincing the general public that they should go along with more tax cuts for the wealthy and more cuts in government spending programs.

As part of this propaganda campaign, each year the Fraser Institute issues a press release announcing the imminent arrival of Tax Freedom Day. In its press release, the Institute states that, until the arrival of this date, Canadians are working for the government, and that only after that date do they start working for themselves. Most years, this implies that Canadian families spend about one-half of their annual income on taxes.

The Fraser Institute has been enormously successful in promoting the concept of Tax Freedom Day, yet the whole notion is incoherent. The term suggests that Canadians derive no benefit from the taxes they pay, but instead that their taxes simply go down some dark hole. It implies that the goods and services that Canadians provide to themselves through democratically controlled institutions-such as medical services, education, police protection, highways, national parks, and disaster relief-do not enlarge their freedoms or enrich their lives.

If, as the Institute claims, Canadians are working for the government until they have earned enough each year to pay their taxes, does that mean that for the rest of the year-or at least until they have earned enough to start saving-they will be working for Loblaw's, Ford Motors, Canadian Tire, and Famous Players, as they shop for their groceries, service their cars, purchase chain saws, and attend movies?

Even if it were useful to inform Canadians how many days they had to work in order to earn enough to pay their taxes, the Institute's calculations are preposterously exaggerated. They understate the income of Canadians, overstate their taxes, misuse the concept of averages, and are often misleadingly applied only to families with at least two members.

Inexplicably, the Institute's statisticians do not include all of a family's economic income in calculating the effective tax rate paid by a family. They include only what they refer to as the "cash income" of the family. Indeed, since they attribute all taxes paid in Canada to individual families-including those paid by employers, corporations, and taxes paid on capital gains-their calculations treat families as having paid a good deal of their taxes out of income they are not treated as having received.

If the Institute had used an average family's total income, as they calculate it, instead of just their cash income, Tax Freedom Day in 2003 would have fallen on April 24 instead of June 22, a full 58 days earlier than that announced by the Institute. Indeed, if the Institute had just used the method of calculating Tax Freedom Day as used by the rightwing Tax Foundation in the United States, instead of their own tortured math, Tax Freedom Day in Canada would have fallen on June 7. But even designating this date as Tax Freedom Day would have substantially overstated the taxes paid by the typical family.

The Fraser's calculations of the taxes paid by the average family are meaningless for most taxpayers for another reason. Because income is distributed so unequally in Canada, the average income of families is much higher than the income of the median family, or the family right in the middle of the income distribution scale. Thus the majority of families earn much less than the average income and their effective tax rates are lower than that of the statistical average family.

Although the Institute does not calculate the taxes paid by the median family, it does calculate the effective tax rate of families in different income deciles. On the basis of their total income, as calculated by the Institute, the poorest 10% of families had an effective tax rate of 12% in 2003, which meant their Tax Freedom Day would be on February 15; those families in the fifth decile (their income placing them in the 40% to 50% of families) had an effective tax rate of 28. …

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TAX FREEDOM DAY: Misleading Canadians about Amount, Purpose of Taxes They Pay
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