June 9, 2017 is Tax Freedom Day!
What is Tax Freedom Day?
Does it really exist?
What might it mean to me?
In their annual report, the Fraser Institute, a Vancouver-based think-tank added up all forms of taxation — from income and sales taxes, to more hidden costs such as gasoline taxes, carbon taxes, tobacco and alcohol taxes, municipal property taxes, payroll taxes and even CPP and EI premiums — to come up with a figure for the overall tax burden for Canadian families, and this year, they have determined that the average Canadian family with two or more people will earn $108,674 and pay 43.4% in taxes.
Based on the Fraser Institute math, 100% of income earned thus far in 2017 has been gobbled up by government in taxes, and only now are you working for yourself until the end of the year.
Last year, in 2016, it came a day earlier, on June 8th and because of variances in all types of taxes in different provinces, Tax Freedom Day differs across the country, ranging from May 21st in Alberta to June 25th in Newfoundland and Labrador.
One of the reasons for the extra day is to account for the fact that Canadians’ tax bill has risen, on average, by $1,126 this year, according to the Fraser Institute. Of that increase, $542, came from higher income taxes, but sales taxes (up $311) and other energy-related taxes (up $204) also took a bigger bite while liquor, tobacco, amusement, and other excise taxes, payroll and health taxes, and import duties all decreased.
The Ottawa-based Broadbent Institute, however, disputes the math behind the annual Fraser Institute report, because the Fraser Institutes uses “average” tax rates instead of median tax rates.
To come up with its “average” tax rates, the Fraser Institute simply adds up the amount of cash income earned by a taxpayer, and then divides that by the number of people. It then takes “outliers” and excludes those extremes from the calculations.
The Broadbent Institute said that skews the numbers in a certain way, and a better way than the average would be to use the median — the exact mid-point between the top and bottom and the rationale behind this surrounds the fact that the average income of Canada will always be higher than the median because of the small number of very high-income earners in Canada, which skews the average income amount higher.
Adding up only federal and provincial income taxes, the “average” Canadian in prime working years (between 25 – 54 years of age) earned $62,600 last year, and paid $12,000 in taxes, or around 19%, according to tax filings. Using the Broadbent method of calculation, the median for that group earned $50,500 last year and paid $7,000, or 14%, in income taxes.
Another main difference is that the figures used by Fraser Institute report doesn’t just include income taxes. It tabulates all sorts of fees that taxpayers don’t directly pay, such as payroll taxes and resource royalties that companies pay when they extract things like oil, minerals and timber.
It also only considers what it calls “cash income” on the other side of the ledger. That excludes employee benefits, investment income from pension plans and other forms of cash income.
The Fraser report also takes into consideration indirect costs like payroll taxes and other taxes which businesses pay in their calculations because even though businesses pay these taxes directly, the cost of business taxation is passed on to Canadians.
So now that we’re working for ourselves, let’s push all levels of government to treat our tax dollars more wisely, and let’s earn as much as possible (while continuing to pay our taxes on time!)