The National Post today cited a study about the new Liberal “tax cuts for the middle class”. This study apparently concluded that people with a high income will see a greater benefit from the tax cuts than the people in the targeted income bracket. I have not read the study but I believe I can re-create the incredible insights discerned after what I am sure was hundreds of hours of research and primary source investigation.
Here are the federal tax brackets in 2015:
- 15% on the first $44,701 of taxable income, +
- 22% on the next $44,700 of taxable income (on the portion of taxable income over $44,701 up to $89,401),+
- 26% on the next $49,185 of taxable income (on the portion of taxable income over $89,401 up to $138,586), +
- 29% of taxable income over $138,586.
If you have a job making $44,701 you pay 15% on your salary. If you then get a raise to $54,701 you don’t get “bumped to a higher tax bracket” as people like to say. You pay 15% on the $44,701 and then 22% on the last $10,000.
So now let’s look at another example using the tax rate change.
Before the Tax Rate Change:
Person 1: Salary of $50,000. They pay 15% on $44,701 and then 22% on $5,299 for a total of $7870.93 paid in Taxes.
Person 2: Salary of $95,000. They pay 15% on $44,701, 22% on the next $44,700 and then 26% on the remaining $5,599 for a total of $17,994.89 in taxes.
After the Tax Rate Change
We will use the same income ranges to make comparisons easier. They will shift a bit in the new plan but the effect will be the same.
Person 1: Salary of $50,000. They pay 15% on $44,701 and then 20.5% on $5,299 for a total of $7791.45 paid in Taxes.
Person 2: Salary of $95,000. They pay 15% on $44,701, 20.5% on the next $44,700 and then 26% on the remaining $5,599 for a total of $17,324.39 in taxes.
So Person 1 has saved $79.49 a year while Person 2 has saved $670.50.
Anyone above $89,401 will get this $670 benefit. So they will be ahead unless they are above $200,000 where the new 33% bracket is being created.
So, if you make above $89,401 but below $200,000 (what the Liberals call middle class) then you will be getting a greater benefit than someone making less than you just like anyone in the $44,700 to $89,401 bracket will benefit more than anyone that that makes even a single dollar less than them.
The Liberals have not changed their plan. This was always what they said they would do under the name “middle class tax cuts”. Interesting fact, median income in Canada in 2013 was $32,020.
Feel free to cite this study.