Justin Trudeau portrays himself as a champion of the middle class. In the Liberals’ first campaign ad, Trudeau claimed he’s “ready to do what my opponents won’t: ask our wealthiest to pay more tax, so our middle class can pay less.” In the first leaders' debate, he said, “We’re the only party on this stage tonight that’s committed to lowering taxes for the middle class by asking the wealthiest to pay more tax.” In his more recent escalator ad, he has said, “In my plan we’ll kickstart the economy by investing in jobs and growth and lowering taxes for our middle class.”
The strategic thinking underlying this messaging is clear. Conventional wisdom holds that most people consider themselves to be middle class, and consequently most voters will think they stand to benefit under the Liberals’ tax plan. The truth, however, is that most Canadian taxpayers won’t.
Under the Liberal plan more than two-thirds of taxpayers would either receive no tax cut or a negligible tax cut of around $80 per year. So while many, if not most, Canadians would consider themselves “middle class,” only a fraction of that number will benefit from the promised tax cut.
The so-called middle-class tax cut
In order to better understand the details of the Liberal “middle-class tax cut,” let’s quickly review the current state of tax policy at the federal level.
As it stands right now, every taxpayer qualifies for the basic personal exemption of $11,327 for 2015. This means anyone earning less than $11,327 pays no income tax. Meanwhile, anyone earning more than the basic personal amount only pays tax on income earned in excess of $11,327.
The first tax bracket runs up to $44,701, and any income earned in this bracket is taxed at a rate of 15 per cent. For example, a taxpayer with $22,327 in income has $10,000 of taxable income, all of which is earned in the 15 per cent bracket. Therefore, their total tax bill for 2015 would be $1,500.
The second bracket runs between $44,701 and $89,401, and any income earned in this bracket is taxed at a rate of 22 per cent. Similarly, the third bracket runs from $89,401 to $138,586 and carries a marginal tax rate of 26 per cent. Finally, the fourth bracket taxes all income in excess of $138,586 at a rate of 29 per cent.
Under the Liberal tax plan, a fifth of tax bracket with a marginal rate of 33 per cent would apply to all income in excess of $200,000. They estimate that this would generate $3 billion in additional tax revenue.
The Liberals would also reduce the marginal rate of the second bracket from 22 per cent to 20.5 per cent. They estimate this would cost the federal treasury $3 billion in lost revenue, making the overall plan revenue neutral.
Who stands to benefit?
The Liberals refer to the second tax bracket as the middle-class income bracket. This implies that they consider Canadians who earn less than $44,701 to be working class and apparently undeserving of a tax cut.
According to Statistics Canada, 53.6 per cent of taxpayers earned less than $35,000 in 2013, the most recent year for which data is available. This means a majority of taxpayers would receive no benefit under Trudeau’s tax plan.
Meanwhile, 69.5 per cent of taxpayers earned less than $50,000 in 2013. A small portion of these taxpayers would benefit under Trudeau’s plan. However, since the reduced marginal rate of 20.5 per cent only applies on income in excess of $44,701, the most generous tax cut any of them could receive would be less than $80 for the entire year.
This means more than two-thirds of taxpayers would either receive no tax cut, or a negligible tax cut of at most $3 per paycheque.
There were 4.2 million taxpayers who earned between $35,000 and $50,000 in 2013. Of this group, only those earning more than $44,701 would earn a tax cut of less than $80.
If all 4.2 million of these taxpayers were given a tax cut of $80, it would cost $336 million. As was mentioned earlier, the Liberals estimate the total cost of the tax cuts at $3 billion. It’s safe to say that at least 90 per cent of this will go to Canadians who are in the top third of income earners.
In fact, the largest tax cuts will go to taxpayers with incomes of between $89,401 and $200,000, all of whom will see their tax bills reduced by a little more than $670. In 2013, this group represented less than 15 per cent of all taxpayers.
Even some taxpayers with incomes in excess of $200,000 would receive a tax cut under Trudeau’s proposal. Although they would pay an increased marginal rate on their earnings in excess of $200,000, they would still benefit from the reduced marginal rate in the second tax bracket. In fact, only taxpayers with income in excess of $216,753 would see an overall increase in their tax bill under Trudeau’s proposal.
So to recap, Justin Trudeau has repeatedly claimed that he will reduce taxes for the middle class. But as we’ve shown, a majority of Canadian taxpayers would receive no benefit under his plan. Furthermore, the more than two thirds of taxpayers who earned less than $50,000 would either receive no tax cut or a negligible tax cut of no more than $80 annually. Meanwhile, the uppermost third of income earners, with the exception of the top 1 per cent of income earners, would receive at least 90 per cent of the proposed $3 billion in tax cuts.
Words matter, and when Trudeau talks about the middle-class most reasonable observers would assume he’s referring to the middle of the income spectrum. In reality, if Trudeau is elected, most middle-class Liberal voters expecting a tax cut will wake up on Oct. 20 to find a lump of coal in their tax return.
In light of this, there are only two reasonable conclusions one can draw: either Justin Trudeau has a very warped definition of middle class, or he’s deliberately misleading us.
Colin Hannity is a civil servant, publishing under an assumed name in order to respect his obligations under the Public Service Employment Act, which mandates non-partisanship for all civil servants. He is also an active supporter of the New Democratic party.