We must lower income taxes on the lower and middle classes

The income tax is one of the single greatest burdens on Canadian families. While a lot of talk goes into “taxing the rich”, not much goes onto “not taxing the common man.” Thus, we must lower taxes on everyday Canadians, and surprisingly, this is something Conservatives and the NDP agree on.

Canada has a progressive marginal taxation system. This means people on the lower end of the socio-economic strata pay less as a percentage of their income than those at the higher end.

Canada even has tax credits to subsidize living costs for Canadians on the lower end of the equation. For example, if someone makes less than or equal to $11,809 per year in personal income they pay 15% federal tax, but that 15% is then given back to them as tax credits. Effectively, they pay $0 in taxes. This is called an income tax credit.

There are, of course, more cases that qualify for tax credits, such as senior citizens, disability, and child benefits, but we will simply look at tax credits on incomes not affected by the aforementioned cases.

The tax brackets in Canada for 2018 are as follows:

If you earn more than $11,809 but less than $46,605 you pay a 15% income tax, but also earn a 15% tax credit on the amount taxed.

If someone earns $46,605 they will pay $6,990.75 (15%) in taxes. Their 15% tax credit on the $6,990.75 will give them $1,048.61 back, effectively meaning that the person would be paying a 12.5% income tax instead of 15%.

A potential solution is to scrap this and replace it with a taxation system that will better benefit the middle and lower class, increasing the personal amount while scrapping income tax credits solely based on income.

The solution is to increase the personal amount for a 0% tax rate from $11,809 to the full bracket of $46,605. So if you earn less than or equal to $46,605 in personal income, you outright pay $0 in income taxes. No confusion with tax credits, and no burden on families who live paycheck-to-paycheck.

This will greatly empower the Canadian middle-class and is an idea supported by those on the left and the right.

If Canadians won’t pay taxes on income between $0 and $46,605, it will effect all other tax brackets too, as those in bracket 2 ($46,605 to $93,208) would have to pay $0 for their first $46,605 and 20.5% for the remaining amount.

This would effectively lower taxes for everyone across the tax-bracket spectrum.

I had a chance to speak with Blake Richard, MP for Banff-Airdrie and the Shadow Minister for Small Businesses, Export Promotion and Tourism. In an exclusive interview, I asked him what he thought about lowering taxes for the low and middle class.

“Whatever we can do to lower taxes is critical,” he said. “People are finding in this country it’s getting more and more difficult to get by.” He also mentioned how the carbon tax is burdening and draining low and middle-class Canadians.

The left-libertarian school of economics also believes in this position. They believe that low and middle-class Canadians ought to pay no taxes as it is already hard for them to manage their expenses, let alone savings.

Asked about whether the NDP and the Conservatives in Parliament can unite to pass such a motion, MP Richard responded, “Yes.”

“I am willing to work with anybody who is willing to lower taxes, and let’s hope we can get there,” he added.

It is, thus, clear the left and right agree on the validity of the idea, but an issue arises with respect to the lost tax revenue from the low and middle class. There is, however, a solution to deal with that too.

To deal with the loss in revenue, one solution could be to slightly increase the Goods and Service Tax (GST) on purchases. The GST already does not apply to basic needs, and thus, would only tax non-essential goods and services. This means the lower and middle-classes will not be affected by a minimal increase in GST.

Another point to note is that with a higher amount of disposable income, greater consumption in the economy will lead to greater government revenue through other taxes as well.

Another solution would be to significantly reduce tax credits since families now save up with lower taxes.

Essentially, raising the GST (which has been at the same rate since 2007) while reducing tax credits could offset any loss of revenue coming in from the lower income tax revenue, without having to burden the upper classes.

This article’s proposal can be highlighted in a new income tax table below, which highlights a proposed income tax bracket with the new tax rate:

While I am nowhere as smart or resourceful as the Budget Committee or the Finance Minister, I believe this sound proposal will only serve to benefit the lower and middle economic strata of Canada, while promoting a greater growth in Canada’s GDP.

With the agreement that the left and right can work to lower income taxes on the low and middle-class, it is only time that everyday Canadians reap the benefits of greater savings and disposable income.

Should everyday Canadians pay less taxes? Do you think this policy suggestion would be useful to you? Let us know in the comments below!