Taxes, without Death

[pyat]

I've had many an American friend make a crack about the high income tax I pay in Canada, to fund our socialized ice cream parties and national policy of providing free ponies for children under 5. Heck, I've heard many a conservative Canadian look admiringly southward and talk about the low, low taxes Americans are burdened with. It strikes me that comparing taxation rates in the two countries should be pretty straightforward. This is what I got from a shallow Google search:

Canadian Income Taxes
These are the most recent Canadian federal income brackets I could find:

0%: $0 - $9,600
15%: $9,601 - $35,595
22%: $35,596 - $71,190
26%: $71,191 - $115,739
29%: $115,740+

In addition, I pay provincial tax. For Ontario (which is higher than most) this is as follows:

6.05%: $0 - $36,020
9.15%: $36,021 - $72,040
11.16%: $72,041+

So, I pay 31.15% of my salary in federal and provincial income tax. In addition, I also pay a flat 4.95% for the Canadian Pension Plan, and 1.73% to Employment Insurance, which I collect if I get laid off.

So, total taxes for me in Ontario are 37.83%.

U.S. Income Taxes
Now, let us compare federal tax rates for an American:

10%: $0 - $7,300
15%: $7,301 - $29,700
25%: $29701 - $71950
28%: $71951 - $150150
33%: $150151 - $326450
35%: $326450+

Add to that a state income tax – we’ll use New York State, since it’s just a 40 min drive from me.

4%: $0 - $8,000
4.5%: $8,001 - $11,000
5.25%: $11,001 - $13,000
5.9%: $13,001 - $20,000
6.85%: $20,001 - $100,000
7.375%: $100,001 to $500,000
7.7%: $500,0001 +

I’d be paying 31.85% of my salary in federal and state income tax, if I were an American citizen. As leonard_arlotte notes, this does not take into account the Federal Insurance Contributions Act (FICA) taxes of 6.2% and 1.45% to support Social Security and Medicare, respectively.

My total income tax in New York State would come to 39.5%

Sales Taxes and Cost of Living
Now, this does not take into account the various sales taxes. Canada has a universal 5% goods and services tax, and most provinces have an additional sales tax. In Ontario, this is an additional 8%, or 13% total. Other provinces are less. In New York State, there is a 4% state sales tax, plus municipal and country sales taxes, averaging out to 8.25% total. So far as I know, there are no city or county sales taxes in Canada. Goods tend to be more expensive in Canada.

However, there are notable exceptions. The cost of food and housing is lower, for example, even in metropolitan areas. Toronto and Vancouver were listed 89th and 96th in 2004 on the lists of “highest costs of living” for cities worldwide. NYC was 12th, LA was 27th, Chicago 35th, San Francisco was 39th.

The price of gasoline is historically substantially higher, though this is dependent
on the dollar exchange. Currently, gas in Ontario is averaging at $1.07 CD per litre. Checking the East Coast U.S. prices online, I see they are currently averaging $3.22 US a gallon, or $3.83 CD a gallon, which comes to…. $1.01 CD a litre.

Cost of Healthcare
Now, U.S. citizens have one more expense than Canadians – private healthcare insurance. According to 2006 data, this averages $4,605 US annually for a single worker in New York state, and $12,075 US for family coverage.

If I were a freelance tech writer in New York state, the total cost of income tax, FICA, and health coverage for my family would represent 68.25% of my total income.

I realize, however, that most employers pay some, most, or all of this premium, which strikes me as a sort of needless tax on employers. Indeed, in 2004, U.S. automakers claimed that $1300 of the price of a new mid-sized car reflected the cost of providing healthcare benefits to their workers. According to wiki, GM spends $7 billion annually on healthcare coverage.

So, those are the numbers I was able to find. Are Canadians taxed more? That depends which province and state you’re comparing, but certainly the income tax rates are comparable, or lower in many cases.

Comments

[notthebuddha.livejournal.com]

It's super to see someone actually digging down to the math under the rhetoric!

There are a couple of possible bumps in your analysis you may need to smooth out:

The presence of a zero rate in the Canadian brackets leads me to think they are assessed on gross income or at least have less in the way of standard deductions for house members and dependents, etc., so there's likely a few thousand dollars difference in the starting point. Also, we have Earned Income Credit, which is refundable and lets some people get effectively a negative income tax rate.

The amounts given on US health care look reasonable, but they come out of pre-tax income here, so the expense can't be simply stacked atop income tax.

Working backward from your figures given, you're contemplating making $42K a year in NY, correct? Standard deductions reduce the taxable income to roughly $37K, and the family medical of $12,075 reduces the taxable income further to $25K, lowering the federal rate to 15%. 21.85% of $25K is $5,463, or 13% of your quoted income. Since you're a freelancer, there are more deductions available and the two winsome moppets are good for a few hundred in EIC and up to 30% of child care in additional deductions IIRC, so you might get as low as 10% before all is said and done.

[pyat.livejournal.com]

Similar deductions - for dependents, for mortgage, for rents, for charitable donations, for childcare, for business costs, etc, are all available in Canada. Freelancers can claim even more.

We also don't count the first $9600 in income. Additionally, any contributions I make into a registered retirement fund effectively work to reduce my income for tax purposes, up to (I think) 30% of my gross income.

This exercise is comparing base rates, only.

[notthebuddha.livejournal.com]

This exercise is comparing base rates, only.

The problem is, we (the US) deliberately make it NOT work around base rates. It's not even a rubber yardstick situation, it's more like playing Fizbin.

Does Revenue Canada have lots of loopholes, etc. leading to a tax prep industry there?

[pyat.livejournal.com]

Does Revenue Canada have lots of loopholes, etc. leading to a tax prep industry there?

Yep. There's an H&R Block and a Liberty Tax Service just down the street.

[pyat.livejournal.com]

This chart compares mean tax rates for corporations and individuals in various countries. Surprising to me is that the U.S. corporate tax mean is higher than Canada, though not significantly.