January 31st, 2020
The mystery that is the middle class
The numbers may seem small and the differences even more so, but the fact that top earners are set to receive the biggest benefit from the latest ‘middle class’ tax cut raises flags of concern. More worrisome is a revelation that the cuts will cost billions more than the government indicated when they were enacted. This information came from the Parliamentary Budget Officer’s (PBO) report this week which unpacked the details of the government’s cut that cleared parliament before the new year.
Numbers aside one thing is clear, that is how the government is committed to the idea of the middle class, even if they struggle to define exactly what constitutes membership in the demographic. Given the wide range of incomes covered by the cut, it could be argued the government sees most people as middle class. Consider that individuals earning as much as $227,500 a year are receiving more benefit from tax relief measures than what is offered to those pulling in $51,000 a year and it’s easy to see the government isn’t using this relief as part of a focused exercise.
If you listened to much of the proceedings from the previous parliament you will likely remember government members uttering the phrase, ‘the middle class and those working hard to join it.’ This time they want to appear even more committed to the notion, so much so that they have create a Minister of Middle Class and Prosperity. The Minister was asked this week what defines membership in the middle class and struggled to answer, admitting that Canada has no official way to measure who is or isn’t a member of the middle class. What is obvious, is that being a member of this class is highly desirable.
The government understands this and are willing to use tax relief to help people see themselves as middle class. Where they can’t stop themselves is extending these measures up the tax chain to those who may be significantly more comfortable than people getting by on nearly five times less income. Those on the upper end of this target group are also set to receive more than those at the bottom, which shows that the idea of the cut was potentially more important than the nuts and bolts of it, which is where the measures become expensive.
According to the PBO report, the tax cut is going to hit Canadian coffers more than anticipated to the tune of an additional $2 billion over five years. That shows the haste at which the government operated with when they brought the measure to parliament. What remains to be seen is if they will adjust their cuts in the future to recoup some of the lost revenues.
Canada has been operating in deficit spending to maintain programs and services most people rely on. The constant chipping away at the tax base isn’t going to help solve the problem. Without a reasonable source of revenue, choices will have to be made that may end up costing us a lot more than the benefit from a few hundred dollars in tax breaks. The notion that taxes are a problem, doesn’t mesh smoothly with big programs such as single payer Medicare. These are the arguments that are often minimalized as politicians rush to impress people with tax cuts.
With an aging population and a young demographic that is subject to increasing amounts of precarious employment – jobs that often have low wages, little security and no benefits - the loss of universal health care would be disastrous. Look south of the border at the phenomenon of medical bankruptcy if you want to see how this could go. This is not an argument against a more reasonable tax burden for lower income earners, it is a reminder that those who are doing well receive much more benefit from robust programs and services than they do from minor tax tweaks that really add up.