Seeking tax clarity

This is another recurring theme but as governments grapple with taxes and spending in fresh new ways these days, I think it is a good time to throw in my two cents.

I think there needs to be far more clarity in taxation.  It’s amazing to me how complicated governments have designed the tax system in Canada – and it seems to be even worse in the U.S.  There are dozens of different taxes, hundreds of deductions and angles depending on a whole host of factors.  Tax rebates (HST, child tax credit, etc.) are calculated in complex ways.  Where and how companies pay taxes is weirdly complex – not to mention any transnational considerations.

I looked at this a few years back for this blog and eventually I gave up looking for other types of taxes but after income tax, HST, EI, property and gas taxes I was up around 40% of my income for that year.   Just to be clear I am talking about federal, provincial and local taxes combined.

That was a good year for me income-wise but at that time I estimated that the average middle class household in New Brunswick would pay somewhere between 30% and 40% of their total gross income in all the different taxes combined – they just don’t ever sit down and calculate this.

Now, there are are couple of points to make here.  Given that the New Brunswick economy is around 40% government and we generate very little tax revenue from corporations or from royalties, I guess it makes sense that someone is going to pay 40% of their gross income to taxes.  The money has to come from somewhere.

I actually don’t mind paying this level of tax.  What I would like is a cleaner, clearer system of taxation.  I would like the government to be honest and upfront about taxation.  I think that would make it more clear to the public/voter how much of their money goes to taxes and I think would breed more accountability over time.

I am not 100% sure of how to do this.   If you look at how much money the NB government gets from HST – it would have to quadruple the amount – if they were to eliminate other forms of taxation (and this doesnt consider federal transfers or the downward pressure on retail sales if you had a 37% HST rate).

A massive increase in personal income taxation?

$9/litre gas?

I guess for practical purposes you still need a mix but maybe one income tax and one sales tax.

Of course this is wasted digital ink because no government is ever going to do this.  Making the tax system complex is a good way to ensure that people don’t do the calculation.

I think what prompted my initial analysis was my interest in calculating how much I paid for health care.  At the time I was working for a company where the boss was complaining about how much he was paying for health care premiums.  I knew that I was paying a pile out of pocket and I knew that a large share of my taxes paid were going to health care.  This is almost five years ago now but at the time I believe my total health care bill (how much I paid either through taxes, company and direct) was over $15,000 (of which I extracted maybe $2,000 in direct services).

I’m a data driven guy.  Maybe the average joe would rather not know.

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3 Responses to Seeking tax clarity

  1. richard says:

    “Of course this is wasted digital ink because no government is ever going to do this”

    True, but the complexity is not a result, IMHO, of govts wanting to make calculations difficult, but to address the lobbying from interested parties for various tax breaks. Every tax break seems to create a tax schedule and another line item on the tax forms.

    Transparency would be great, but I’d rather see govts address transparency first in how revenues are spent. Releasing a more detailed budget (by department and agency) in excel and html formats, rather than pdfs would be a start.

  2. That’s so true. i have scoured the provincial books and can’t even find out how much of the budget is payroll – let alone how fast are benefits costs rising. It’s almost as if – just like US SEC filings – they are engineered to provide huge amounts of data and very little insight into the spending of government.

    Some of this stuff is available by access to information request but that is too much for the average person looking to get a handle on things.

  3. The problem is that the only tax simplification schemes we hear about – like, say, flat tax initiatives, or a greater emphases on sales taxes – end up with the rich paying much lower taxes, and those with valid deductions – like say, health care costs – paying taxes they cannot afford. Not that they pay their fair share as it is, but none of us can afford to have them pay even less.

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