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Ottawa
wages war on Canadian families through the income tax
system, making it more difficult for parents to raise
their own children.
When
personal income tax was introduced as a "temporary"
measure in 1917, families with children were granted a
$3,000 basic exemption from income tax. Three thousand
dollars doesn't sound like much, but adjusted for inflation
it works out to $40,000 in today's dollars. In 1917, personal
income tax was paid only on earnings in excess of what
a family needed for housing, food, clothing and other
essentials.
But
oh, how times have changed. The Canadian family in 2003
doesn't come remotely close to being able to keep its
first $40,000 to sustain itself. A basic personal exemption
of $7,765 plus a spousal exemption of $6,586 makes for
$14,351, after which the lowest personal income tax rate
of 16% kicks in. Aside from the personal and spousal exemptions,
Canada's tax system doesn't provide further tax breaks
for the cost of raising children. If it costs at least
$200 per month to provide a child with food, clothing,
school supplies, toys and other amenities, Ottawa has
no qualms about taxing away 16% of this amount.
Canada's
tax system does allow a Child Care Expense Deduction for
parents who pay to put their children in day care. But
parents who care for their own children, whether alone
or with the assistance of grandparents or other family
members, get no recognition for their efforts to raise
the next generation of citizens, employers, employees
and taxpayers. There are as many different child care
arrangements as there are families. Ottawa should start
respecting this diversity and help all Canadian parents,
not just one group of parents.
Does
anyone think that a family of four can live on $14,351
per year in 2003? Consider the cost of food, electricity,
car insurance, school supplies, clothes, sports, hobbies,
and toys - not to mention rent or mortgage payments. If
a family of four can't live on $14,351 per year, why does
Ottawa start taking away 16% of earnings in excess of
that amount? Why not let a family keep its first $40,000
tax-free, like Canada did in 1917, and like the U.S. does
today?
But
doesn't Ottawa give away billions of tax dollars through
the Canada Child Tax Benefit and other spending programs?
Yes, and these payments offer no incentive to rise out
of poverty. That's because these payments dry up completely
as family income rises, killing incentives to work and
earn. As a family's income rises from $15,000 to $35,000,
a family loses between 60% and 100% of each dollar that
is earned.
These
losses take two forms. First, the Canada Child Tax Benefit,
other federal payments, and provincial welfare payments
are "clawed back" when parents earn money. Second,
as earnings increase the family must start paying personal
income tax, the CPP tax and the EI tax. The federal government
taxes money away from families who barely earn enough
to provide properly for their own needs. A family struggling
to raise its income from $20,000 to $25,000 (or from $25,000
to $30,000) will be lucky to keep just 40 cents of every
dollar earned. Why would a lower-income person work in
order to keep only 40% (or less) of his earnings, most
of which will be lost to claw-backs and taxes?
You
would think that all five parties in the House of Commons
would agree to denounce this situation as unconscionable,
but no such luck.
So
what should Ottawa do to end this war on Canadian families?
First,
the basic personal exemption from income tax should be
raised to $15,000 for every Canadian adult. Whether a
couple has children or not, shouldn't the first $30,000
be available to pay for things like food and the rent
or mortgage? And why shouldn't a single person be able
to keep all of the first $15,000 that she or he earns
in a year?
Second,
an income tax exemption of $2,500 per child would help
each and every Canadian parent to provide adequate food,
clothing and other necessities to children. For example,
a family of four (mom, dad, two kids) would pay no federal
or provincial income tax on the first $35,000 earned.
That's
not quite as generous as the income tax exemption in place
in 1917, but it's a large step in the right direction.
Making families' basic needs a "tax free zone"
will increase incentives to work. More Canadians will
enjoy the dignity and self-respect of earning their own
money to provide for themselves, rather than relying on
taxpayer-funded hand-outs from government. Most importantly,
these two changes will give all Canadian families a break
from the tax collector, and make it easier for parents
to provide for their children.
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