Taxation discussion fatigue

We never really have a serious discussion about taxation in this province.  Periodically we will get a story like this one which suggests if you make $1 million per year you will pay $417,000 in income taxes if you live in New Brunswick.  We get similar stories on the business/corporate side talking about what they will pay based only on the income tax rate.

The reality is that very few people – if any – in New Brunswick would ever pay the $417k.

There are under 1,200 people in New Brunswick that reported total income in 2007 of over $250k.  We don’t know how many of those people earned over $250k of ’employment’ income (which is the rate used in the story above) but my guess would be very few.  

As I have pointed out here many times after your employment income tops $100k or so it makes sense to have it streamed as dividends or corporate income and that is why the bulk of everyone with high earnings owns a business – with the notable exception of government workers.  Lawyers, dentists, doctors, electricians, plumbers, consultants, etc.   When Bernie dropped the small business tax rate to only 5% a few years ago several thousand self-employed persons switched to incorporation to get this low rate.

And even if you don’t own a small business to flow your high income through, there are many other  ways to ensure the tax man doesn’t get your $417k – tax sheltered investments, reporting income earned in other jurisdictions, taking income in other forms than employment income, tec.

My point here is not to pick on people that earn lots of money.  Good for them.  My point here is that governments tend to set tax policy based on the superficial view of tax rates.

The debate around how we generate the taxes we need to pay for public services should be had with the real data.  We have this faux debate about tax rates when it isn’t correlated to reality. 

That’s why I like consumption taxes.  They are clean and tidy and hard to avoid and their regressive nature can be minimized with rebates for people at lower income levels.

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