By BRIAN GIFFORD
Having recently paid their property and income taxes, Nova Scotians may take solace from recent articles in The Chronicle Herald, on the total family tax bill (May 3, by Charles Lammam and Milagros Palacios of the Fraser Institute) and on the tax treatment of dividends (May 12, by Roger Haineault), but for quite different reasons. The first article may confirm the feeling some Nova Scotians have that they are overtaxed, while the second may help others feel glad they have escaped the tax collector.
However, for most Nova Scotians, the more important questions are whether the taxes we pay are worth the value we get and whether we are taxed fairly.
Looking at what our taxes buy, they recognize the bargain we are getting and they frown on the kind of tax avoidance some Nova Scotians get away with.
While recognizing that taxes finance important government programs, Lammam and Palacios argue that total taxes paid by the average family are high, even larger than what the family spends on necessities.
Are our taxes high? For an international comparison, the taxes paid in Canada puts us about in the middle of the OECD (Organization for Economic Co-operation and Development) countries.
The claim that the average tax bill is higher than the 33.6 per cent of income the authors say we spend privately on “basic necessities" — food, clothing and shelter — ignores the fact that most of our taxes cover other necessities, like health care, education, fire protection and roads.
For a family with “an average income of $74,233," the authors’ total tax-bill estimate is $33,455.
But this includes Employment Insurance and Canada Pension Plan premiums, which are insurance and investments, not taxes.
They also include business taxes, believing these costs to business will eventually be paid by Canadian consumers. However, this ignores the 40 per cent of our output which is exported.
Their estimate also includes government deficits, arguing they have to be paid out of taxes in the future; but it is nonsense to include a deficit as a tax in the year it occurs. Adjusting for these over-estimates of taxes, the total average tax bill is roughly $22,500 or 30 per cent of income — about a third less than Lammam and Palacios estimate.
Lammam and Palacios suggest that knowing the full amount of taxes we pay can lead us to “better assess whether we are receiving value-for-money." This is an important question Canadians should ask, and the fact is that we get exceptional value for money.
One example is health care.
The U.S. fraction of total output spent on health care is more than 50 per cent higher than in Canada, yet our system covers everyone while almost 50 million in the U.S. have no health coverage.
There is vigorous debate in Nova Scotia about recent cuts to education budgets because we all recognize the value of a good public education system for the future of our children and our society.
An equally compelling question concerns fairness: Who pays how much of the taxes in an economy which has significant — and increasing — income disparities? Haineault estimates that the special treatment of dividend interest means that someone who has only dividend income can report almost $30,000 in dividends and pay no taxes!
In an earlier column, he discusses capital gains income (e.g., growth in the value of stocks, land, foreign currency, etc.), only half of which is taxable. In Nova Scotia, the top four-tenths of one per cent of tax filers reported more than 40 per cent of the capital gains in 2009. Corporate executives’ stock options get the same 50 per cent inclusion rate too. The million-dollar incomes of Emera/Nova Scotia Power executives rightly anger Nova Scotians. To the extent that those salaries and bonuses come in stock options that are only halftaxed makes the situation much worse. These tax breaks are grossly unfair and must be eliminated.
Thus, the disparities in income and preferential tax treatment for forms of income going primarily to the wealthy make data on the “average family" uninformative at best. For instance, low-income families spend a much higher (almost 50 per cent, on average, for Nova Scotians in the bottom fifth of earnings) proportion of their incomes on necessities, but only a slightly lower portion for taxes than the rest of us.
The problem isn’t that the total taxes paid by most Canadians are high; it’s that the total tax/income ratio for those at the top, who can most afford to contribute to society through their taxes, is lower than for almost all Canadians. Yet, a recent Environics poll shows that a significant majority of Canadians are willing to pay higher taxes to support government programs — but they also want the tax system to be made more fair.
Brian Gifford is chair, Nova Scotians for Tax Fairness.