In 2010, the average Canadian family faced a total tax bill of $29,913 against income of $72,393. This means all taxes imposed on the average Canadian family consumed more than 41% of its annual income.
Such taxes include income taxes, payroll taxes, sales taxes, property taxes and a host of other taxes that Canadians pay but don't necessarily see. The average family's tax bill has grown more rapidly than any other expenditure item over the past 50 years.
More specifically, the tax bill for a family with average income has increased by 1,686% since 1961. In contrast, expenditures on housing increased by 936%, food by 460% and clothing by 416% over the same period.
The total tax bill has grown to the point where families are now paying more in taxes than they do for these basic necessities.
While just over 41% of the family's budget went to paying for government, 34% of the budget went to paying for food, clothing, and housing combined.
More worrying, the tax bill has greatly outpaced the increase in the consumer price index (up 642% since 1961), which measures the average price that consumers pay for the goods and services they buy of their own choice.
If our politicians really want to help hard-working families make ends meet, they should focus on reducing the nearly $30,000 tax bill paid by the average family each year. A good starting point would be to cut personal income taxes, which make up about a third of all taxes paid by the average family.
Consecutive federal governments (both Liberal and Conservative) have highlighted the destructive impact of Canada's personal income taxes. In 2005, then-prime minister Paul Martin's economic plan, A Plan for Growth and Prosperity, stated that: "Lower personal taxes would ... provide greater rewards and incentives for middle-and high-income Canadians to work, save and invest."
Similarly, Prime Minister Stephen Harper's original economic plan, Advantage Canada, stressed that "Canada needs lower personal income tax rates to encourage more Canadians to realize their full potential."
Despite this lofty rhetoric, little has been done since 2005 to reduce income taxes. And the only proposal offered by the current batch of federal party leaders to permanently reduce personal income taxes is the Conservatives' Family Tax Cut -a proposal that would establish income sharing for couples with dependent children under 18 years of age.
Aside from the many problems with the Family Tax Cut -i.e., families would face a substantial increase in personal income taxes as their children turn 18 and enter costly post-secondary education -it amounts to a mere $2.5-billion per year reduction in personal income taxes. This works out to a 1.6% reduction in personal income tax revenue and will not come into effect for another five years.
Federal party leaders of all stripes will, of course, say that substantial tax relief is not possible given the current deficit situation. But the deficit hasn't stopped them from proposing increases in government spending. For example, the Conservatives are proposing $6.6billion in goodies to special-interest groups over four years. The Liberals, meanwhile, are proposing $8.2-billion over the next two years and the traditionally big-government NDP is proposing $38.7-billion in new spending over the next four years.
A serious, multi-year plan to reduce personal income taxes would provide income-splitting for all families (regardless of child status) and eliminate the middle-income tax brackets (22% and 26%), leaving only one rate for the majority of citizens and one higher rate for upper-income Canadians. In addition, the threshold of income at which the top rate applies should be increased substantially to $250,000.
An even better and simpler option would be to implement a 15% flat tax, which would negate the need for income-splitting.
Either plan would substantially reduce the total tax bill for most Canadian families and dramatically improve incentives for work, investment and entrepreneurship. Ultimately, improved incentives will spark economic activity and bring additional income tax revenue as the tax base and economy grow.
To help pay for the rate reductions and minimize economic distortions, many of the boutique tax credits in the existing system could be eliminated.
Once the dust from the federal election settles, the new government should focus on truly helping Canadian families. Reducing taxes, the family's largest budget expenditure, should be first on the agenda.