In an article titled Squeezed published in the December 2008 issue of MoneySense magazine, columnist Rob Gerlsbeck refers to a Fraser Institute study on taxes:
Because while a pay raise once went straight into your pockets, it is now likely to disappear before you even see it. Who gets it? The taxman. A generation ago, the average Canadian family handed over about 36% of its income to government in the form of income taxes, property taxes, sales taxes and so on. Today that figure is a staggering 45%, according to the Fraser Institute. So while our wages have stayed pretty much the same, we are paying thousands of dollars more every year to various levels of government.
While Mr. Gerlsbeck does not provide a reference to the Fraser Institute study, I presume he is referring to the Tax Freedom Day report published last year:
In 2008, the average Canadian family earned $90,678 in income and paid a total of $40,667 in taxes (44.8 percent).
The Fraser Institute’s calculation of the Tax Freedom Day garners a lot of publicity and much hand wringing over our high tax burden (I’m not blameless here — see earlier posts on this topic). The reports do highlight the myriad taxes that Canadians pay but may not be aware for — employer share of EI premiums and CPP contributions, for instance.
However, the figures used by the Fraser Institute reflect neither the household income nor the tax burden of a typical family. According to Statistics Canada’s Income in Canada (75-202-X), an economic family with two persons or more earns, on average, a total income (including Government transfers) of $86,300 and an after-tax income of $71,900. Note that these figures are fairly close to the Fraser Institute’s estimate of $83,775 and $70,262 respectively for the 2007 year. Since, the income distribution is skewed, it makes much better sense to look at median instead of average values. The median economic family with two persons or more earned less and paid a lot less in taxes: a total income of $70,800 and an after-tax income of $61,800.
Even this figure is an exaggeration because it excludes unattached individuals whose incomes are a lot lower. The income tax rate on a median family is 12.7%; not 16.1% that the Fraser Institute claims an “average family” pays. Hence, it is also highly likely that the 44.8% total tax burden is a statistical exaggeration.
