The Problem With Bashing The Rich

[Cowperson]

Interesting article at CBSnews.com which looks at a common election issue pretty much throughout the world - "Do the rich pay their fair share?"

. . . . the share of total income taxes paid by the top 2 percent of taxpayers — those targeted by Kerry and Edwards — was 41.3 percent in 2001, according to the Internal Revenue Service, though their share of total income was 22.4 percent.

If I'm not mistaken, those numbers are fairly similar in Canada.

The issue is discussed at length in this article.

http://www.cbsnews.com/stories/2004/08/02/...ain633465.shtml

Cowperson

[Cheese]

I still think a Flat tax system of 15% across the board would make it fair for everyone. Ive never been a fan of the bracket system. If I get a raise I want to see that raise, I dont want to bump up 2 brackets and end up losing money.
Flat tax = fair for all....Brackets = b!tching and cheating.

[calf]

Originally posted by GerryCheevers@Aug 4 2004, 10:21 AM
I still think a Flat tax system of 15% across the board would make it fair for everyone. Ive never been a fan of the bracket system. If I get a raise I want to see that raise, I dont want to bump up 2 brackets and end up losing money.
Flat tax = fair for all....Brackets = b!tching and cheating.

How do you lose money when you get a raise under the marginal tax system?? The raise might not look as sweet, but you don't lose money

[Cheese]

Originally posted by calf+Aug 4 2004, 11:23 AM--></div><table border='0' align='center' width='95%' cellpadding='3' cellspacing='1'><tr><td>QUOTE (calf @ Aug 4 2004, 11:23 AM)</td></tr><tr><td id='QUOTE'> <!--QuoteBegin-GerryCheevers@Aug 4 2004, 10:21 AM
I still think a Flat tax system of 15% across the board would make it fair for everyone. Ive never been a fan of the bracket system. If I get a raise I want to see that raise, I dont want to bump up 2 brackets and end up losing money.
Flat tax = fair for all....Brackets = b!tching and cheating.

How do you lose money when you get a raise under the marginal tax system?? [/b][/quote]
I was being mostly facetious.... as normal. However in the system as we have it now a person on the lower range of monthly pay can get a raise into a medium bracket and barely see any change in their income due to brackets changing.
For me it doesnt matter, Im already at the top bracket, I have to make my tax breaks myself.
Now IF all people, corporations, etc pay a Flat 15% every raise is a raise....nothing changes, except loopholes are closed and everyone is in the same boat.
It would literally put thousands of Tax lawyers and Accountants out of business....not to mention half of Revenue Canada.

[Tron_fdc]

Originally posted by fotze@Aug 4 2004, 04:37 PM
For interest Canada's federal tax rates are:

Up to $35,000 - 16%
35,001 - 70,000 - 22%
70,001 - 113,804 - 26%
113,805+ - 29%

Hey Gerry, how about a loan?

I also own a pile of waterfront property in the Thunder Bay region if you're interested

[calculoso]

Originally posted by calf@Aug 4 2004, 10:23 AM
How do you lose money when you get a raise under the marginal tax system?? The raise might not look as sweet, but you don't lose money

If you're close to a tax boundary, it is possible to lose take-home pay if you get a raise. Take this example:

Make $35,000 per year. You're just at the lowest tax bracket of 16%. This means you pay $5,600 in taxes and take home $29,400.

You have a good year and get a 5% raise. Your new salary is $36,750. Now though, you're in the next tax bracket of 22%. This means you now pay $8,085 in taxes and take home $28,665.

Thus, on a $1,750 raise, you take home $735 less.

Now, say you've had a really good year and get a 10% raise instead. Your new salary is $38,500. You're now in the next tax bracket of 22%. This means you now pay $8,470 in taxes and take home $30,030.

Thus, on a $3,500 raise, you take home a measly $630 more.

Granted, most people fall in the middle of the tax brackets, but there still are those that get screwed by being "rewarded".

[AaronSJ]

Originally posted by calculoso@Aug 4 2004, 12:48 PM
You have a good year and get a 5% raise. Your new salary is $36,750. Now though, you're in the next tax bracket of 22%. This means you now pay $8,085 in taxes and take home $28,665.

Your numbers (and argument) are wrong because you aren't taxed 22% on your whole income, just the portion above the $35,000.

Everyone is taxed 16% (plus the provincial levy) on their first $35,000... then 22% on any amount BETWEEN 35,001 and 70,000, etc...

[Cowperson]

A few more stats to throw into the discussion, from an article dated Sept. 2003. Again, I think these stats are fairly similar to Canada:

In California, taxpayers with adjusted gross incomes of more than $100,000 make up the top 11 percent of taxpayers. This highest-earning group reported 54 percent of the total income in the state and paid 80 percent of the state’s income taxes. Taxpayers with incomes over $500,000 account for less than 1 percent of total tax returns filed but pay about 40 percent of the personal income taxes paid in the state.

Tax returns at the federal level reveal a similar, though slightly less skewed, pattern. According to the Tax Foundation, the top 10 percent of U.S. taxpayers earned more than 46 percent of the adjusted gross income in 2000. These same households paid 67 percent of federal personal income taxes.

The article says a "liberal" arguer might say: The rich make 46% of all income, therefore we have to tax them more."

A "conservative" might answer: "Sure they make 46% of all income, but they pay 67% of all taxes so they're already paying more than their fair share."

Which side is right?

http://www.hooverdigest.org/034/morse.html

Cowperson

[photon]

Um, I think you pay 16% on the first 35,000 and then pay 22% on anything from 35,000 to 70,000...

So you'd pay $5600 on the first $35,000, then pay $385 tax on the next $1750.

Plus there's the $8000 that is non-taxable (or whatever it is now).

EDIT: AaronSJ beat me to it.

[calculoso]

Gotcha. My mistake.

I guess that's what I get for plugging my numbers into QuickTax and just taking the number it spits back at me, instead of fully understanding it.

Thanks for correcting me.

[AaronSJ]

No problem -- It's a fairly common misconception about our taxation system. I actually had this discussion recently with a family member who was convinced that having an income in a higher tax bracket would result in considerably more taxes and even once turned down a promotion because of this belief.

If this was the case, you wouldn't see many people take jobs that earn $35,000 to $40,000... (and there are a lot of them in this country!).

[nfotiu]

Originally posted by AaronSJ@Aug 4 2004, 06:45 PM
No problem -- It's a fairly common misconception about our taxation system. I actually had this discussion recently with a family member who was convinced that having an income in a higher tax bracket would result in considerably more taxes and even once turned down a promotion because of this belief.

If this was the case, you wouldn't see many people take jobs that earn $35,000 to $40,000... (and there are a lot of them in this country!).

There is one caveat to this whole thing, and I've seen it happen. The formulas used for calculating withholding are not as robust as the actual tax formulas. I believe the withholding formulas take a more simplistic approach and apply a flat percentage on your whole income depending on which withholding bracket you are in. Therefore if your raise just passes the threshhold, you can get a paycheque that is less. You do end up with more money overall once you fill in your tax return, but it is possible to end up with less on a paycheque by making more.

[Cowperson]

Originally posted by nfotiu+Aug 4 2004, 07:08 PM--></div><table border='0' align='center' width='95%' cellpadding='3' cellspacing='1'><tr><td>QUOTE (nfotiu @ Aug 4 2004, 07:08 PM)</td></tr><tr><td id='QUOTE'> <!--QuoteBegin-AaronSJ@Aug 4 2004, 06:45 PM
No problem -- It's a fairly common misconception about our taxation system. I actually had this discussion recently with a family member who was convinced that having an income in a higher tax bracket would result in considerably more taxes and even once turned down a promotion because of this belief.

If this was the case, you wouldn't see many people take jobs that earn $35,000 to $40,000... (and there are a lot of them in this country!).

There is one caveat to this whole thing, and I've seen it happen. The formulas used for calculating withholding are not as robust as the actual tax formulas. I believe the withholding formulas take a more simplistic approach and apply a flat percentage on your whole income depending on which withholding bracket you are in. Therefore if your raise just passes the threshhold, you can get a paycheque that is less. You do end up with more money overall once you fill in your tax return, but it is possible to end up with less on a paycheque by making more. [/b][/quote]
I think any Canadian who has gone from $40,000 to about $60,000 in income is fairly astonished at how little they advance in terms of the money they take home.

Cowperson

[nfotiu]

Originally posted by Cowperson+Aug 4 2004, 07:19 PM--></div><table border='0' align='center' width='95%' cellpadding='3' cellspacing='1'><tr><td>QUOTE (Cowperson @ Aug 4 2004, 07:19 PM)</td></tr><tr><td id='QUOTE'>

There is one caveat to this whole thing, and I've seen it happen. The formulas used for calculating withholding are not as robust as the actual tax formulas. I believe the withholding formulas take a more simplistic approach and apply a flat percentage on your whole income depending on which withholding bracket you are in. Therefore if your raise just passes the threshhold, you can get a paycheque that is less. You do end up with more money overall once you fill in your tax return, but it is possible to end up with less on a paycheque by making more.

I think any Canadian who has gone from $40,000 to about $60,000 in income is fairly astonished at how little they advance in terms of the money they take home.

Cowperson [/b][/quote]
One other tax myth I'd like to debunk is the American/Canadian myth.

I filled out tax returns for both countries using the exact same income for 3 years. Alberta/Canada taxes were always less than North Carolina/USA and Virginia/USA. And we get free health care in Canada, which is not at all insignificant. Americans can pay $1000/month or more if they go at it alone for health care coverage that is no where near as good coverage as the Albertan government provides.

[Cowperson]

Originally posted by nfotiu+Aug 4 2004, 07:23 PM--></div><table border='0' align='center' width='95%' cellpadding='3' cellspacing='1'><tr><td>QUOTE (nfotiu @ Aug 4 2004, 07:23 PM)</td></tr><tr><td id='QUOTE'>

I think any Canadian who has gone from $40,000 to about $60,000 in income is fairly astonished at how little they advance in terms of the money they take home.

Cowperson

One other tax myth I'd like to debunk is the American/Canadian myth.

I filled out tax returns for both countries using the exact same income for 3 years. Alberta/Canada taxes were always less than North Carolina/USA and Virginia/USA. And we get free health care in Canada, which is not at all insignificant. Americans can pay $1000/month or more if they go at it alone for health care coverage that is no where near as good coverage as the Albertan government provides. [/b][/quote]
The Flames use that argument in their negotiations as well. They attempt to demonstrate that Alberta is one of the lowest tax jurisdictions in North America.

Phil Housley, for one, signed a deal in Calgary based on that argument I'm pretty sure.

Cowperson

[nfotiu]

Originally posted by Cowperson+Aug 4 2004, 07:27 PM--></div><table border='0' align='center' width='95%' cellpadding='3' cellspacing='1'><tr><td>QUOTE (Cowperson @ Aug 4 2004, 07:27 PM)</td></tr><tr><td id='QUOTE'>

One other tax myth I'd like to debunk is the American/Canadian myth.

I filled out tax returns for both countries using the exact same income for 3 years. Alberta/Canada taxes were always less than North Carolina/USA and Virginia/USA. And we get free health care in Canada, which is not at all insignificant. Americans can pay $1000/month or more if they go at it alone for health care coverage that is no where near as good coverage as the Albertan government provides.

The Flames use that argument in their negotiations as well. They attempt to demonstrate that Alberta is one of the lowest tax jurisdictions in North America.

Phil Housley, for one, signed a deal in Calgary based on that argument I'm pretty sure.

Cowperson [/b][/quote]
I think you may be thinking of Bob Boughner. Housley may have as well, not sure.

[Jaybo]

Originally posted by cowperson

I think any Canadian who has gone from $40,000 to about $60,000 in income is fairly astonished at how little they advance in terms of the money they take home.

Cowperson

I understand why people on the borders between different tax rates are nervous but I'm not sure I understand Cow's point here. Using the numbers given above, a person is in the 22% federal rate whether they make $40 000 or $60 000. So aren't they taking home the same percentage (78%)? Or does this have something to do with the provincial tax rate changing in that range?

Does Alberta have a 10% flat tax for personal income? I didn't know that (er, probably should though.)

Anyone know of a site that compares tax rates across Canada for different income levels?

Also found this page which has a wealth of information about the Alberta economy, taxes, etc. Does anyone know why the federal tax rate examples for a family of 4 making $60 000 differ by a few dollars from province-to-province? Shouldn't they be the same across the country?

[Crazy Flamer]

Originally posted by Cowperson+Aug 4 2004, 07:19 PM--></div><table border='0' align='center' width='95%' cellpadding='3' cellspacing='1'><tr><td>QUOTE (Cowperson @ Aug 4 2004, 07:19 PM)</td></tr><tr><td id='QUOTE'>

There is one caveat to this whole thing, and I've seen it happen. The formulas used for calculating withholding are not as robust as the actual tax formulas. I believe the withholding formulas take a more simplistic approach and apply a flat percentage on your whole income depending on which withholding bracket you are in. Therefore if your raise just passes the threshhold, you can get a paycheque that is less. You do end up with more money overall once you fill in your tax return, but it is possible to end up with less on a paycheque by making more.

I think any Canadian who has gone from $40,000 to about $60,000 in income is fairly astonished at how little they advance in terms of the money they take home.

Cowperson [/b][/quote]
I guess that's a matter of perspective.

Take someone who earns $40,000 a year, living in Alberta. He gets takes 16% on the first 35,000 for a total of $5,600. On the other 5,00 he gets taxed at 22% or 1,100. The provincial rate is 10% making that 4,000. The total taxes paid are 10,700 with a net income of 29,300.

Now take someone makig 60,000 in the same province. 5,600 in taxes paid on the first 35,000 and 5,550 and the other 25 grand. Lets not forget the provincial taxes at 6,000. The total amount paid in taxes is 17,100 and a net income of 42,900.

That's a difference of over a thousand a month, clear. That would make quite a differnce in my book, unless my math is completely off. Seeing as how I just got back from vacation, that is entirely possible.

[Cowperson]

Originally posted by Hockey_Boy+Aug 5 2004, 01:45 AM--></div><table border='0' align='center' width='95%' cellpadding='3' cellspacing='1'><tr><td>QUOTE (Hockey_Boy @ Aug 5 2004, 01:45 AM)</td></tr><tr><td id='QUOTE'>

I think any Canadian who has gone from $40,000 to about $60,000 in income is fairly astonished at how little they advance in terms of the money they take home.

Cowperson

I guess that's a matter of perspective.

Take someone who earns $40,000 a year, living in Alberta. He gets takes 16% on the first 35,000 for a total of $5,600. On the other 5,00 he gets taxed at 22% or 1,100. The provincial rate is 10% making that 4,000. The total taxes paid are 10,700 with a net income of 29,300.

Now take someone makig 60,000 in the same province. 5,600 in taxes paid on the first 35,000 and 5,550 and the other 25 grand. Lets not forget the provincial taxes at 6,000. The total amount paid in taxes is 17,100 and a net income of 42,900.

That's a difference of over a thousand a month, clear. That would make quite a differnce in my book, unless my math is completely off. Seeing as how I just got back from vacation, that is entirely possible. [/b][/quote]
I wasn't comparing provinces.

I made a general statement about Canada, saying if you've gone from $40,000 to $60,000, you might wonder where all the extra money went.

For amusement, I grabbed the nearest old tax form I had - 2002 Alberta - and blew $40,000 through it and then $63,354 (I used that number for the next bracket in that tax year to illustrate the point).

Obviously the gross difference is $23,354 between the numbers.

For the person earning $63,354, the net tax, federal and provincial, without extra deductions for RSP's etc, appeared to be $14,798.55 .

For the person earning $40,000, the net tax, federal and provincial, without extra deductions for RSP's etc, appeared to be $7,660.61.

In other words, just bumping your income up about 58% saw your tax bill jump 93%.

Obviously the person is still further ahead - never questioned by myself - but if you've gone through those brackets you DO wonder how much progress you're making, particularly if you're used to the lower bracket.

That was the point I was making.

I'm not an accountant by the way so someone more learned or more capable can correct me on those numbers if they feel like it.

Cowperson

[nfotiu]

Originally posted by Cowperson+Aug 5 2004, 03:10 AM--></div><table border='0' align='center' width='95%' cellpadding='3' cellspacing='1'><tr><td>QUOTE (Cowperson @ Aug 5 2004, 03:10 AM)</td></tr><tr><td id='QUOTE'>

I guess that's a matter of perspective.

Take someone who earns $40,000 a year, living in Alberta. He gets takes 16% on the first 35,000 for a total of $5,600. On the other 5,00 he gets taxed at 22% or 1,100. The provincial rate is 10% making that 4,000. The total taxes paid are 10,700 with a net income of 29,300.

Now take someone makig 60,000 in the same province. 5,600 in taxes paid on the first 35,000 and 5,550 and the other 25 grand. Lets not forget the provincial taxes at 6,000. The total amount paid in taxes is 17,100 and a net income of 42,900.

That's a difference of over a thousand a month, clear. That would make quite a differnce in my book, unless my math is completely off. Seeing as how I just got back from vacation, that is entirely possible.

I wasn't comparing provinces.

I made a general statement about Canada, saying if you've gone from $40,000 to $60,000, you might wonder where all the extra money went.

For amusement, I grabbed the nearest old tax form I had - 2002 Alberta - and blew $40,000 through it and then $63,354 (I used that number for the next bracket in that tax year to illustrate the point).

Obviously the gross difference is $23,354 between the numbers.

For the person earning $63,354, the net tax, federal and provincial, without extra deductions for RSP's etc, appeared to be $14,798.55 .

For the person earning $40,000, the net tax, federal and provincial, without extra deductions for RSP's etc, appeared to be $7,660.61.

In other words, just bumping your income up about 58% saw your tax bill jump 93%.

Obviously the person is still further ahead - never questioned by myself - but if you've gone through those brackets you DO wonder how much progress you're making, particularly if you're used to the lower bracket.

That was the point I was making.

I'm not an accountant by the way so someone more learned or more capable can correct me on those numbers if they feel like it.

Cowperson [/b][/quote]
It is a somewhat silly way of putting it. Put another way, a 58% salary increase, sees a 50% raise in take home pay. Although, point taken, that is the area that you see the biggest discrepencies between increase in take home and increase in gross. After that they will be within a couple percentage points, I would imagine.