Unless analyzing tax policy is part of your day job, you likely avoid thinking about what ultimately can be a polarizing topic. But with the deadline for filing our income tax returns around the corner, we're all forced to at least temporarily think about taxes. The deadline, after all, is a sharp reminder of how much income tax we paid throughout the year.
While some gladly pay their share -- thinking of the numerous government programs these tax dollars finance -- others feel their income tax burden is too high. No matter where you fall in this debate, to truly gauge whether you're getting value for your tax dollars you must have a complete understanding of all the taxes you pay -- in addition to income taxes.
For that, you must look beyond your income tax returns because income taxes form only a portion of the total tax bill imposed on us by all levels of government (federal, provincial, and local). According to our calculations, a Canadian family with average income of $74,113 paid $9,195 in income taxes in 2012. While personal income taxes are the single largest type of tax paid by families, they represent less than one-third of the total.
Two other significant taxes on our tax returns are premiums for the Canada Pension Plan (CPP) and Employment Insurance (EI). In addition, residents of British Columbia, Ontario, and Quebec pay health care taxes either through direct premiums or payroll taxes. Altogether, the average Canadian family paid some $6,769 in CPP, EI, and health taxes in 2012. Payroll taxes are second only to income taxes as the single largest government levy.
Next up are sales taxes, which many of us hate since they show up every time we make a purchase. Calculating the amount of sales taxes paid by Canadian families is difficult as it requires people to track all their purchases of taxable goods and services. Nonetheless, our estimates suggest the average Canadian family paid about $4,812 in sales taxes last year.
Property taxes are no more popular than sales taxes and add $3,607 to the average family's tax bill. A common misconception is that only homeowners pay property taxes. But renters also pay these taxes since they are rolled into their monthly rent. In one form or another, we all pay property taxes.
We're not done yet. There are a host of less visible taxes that Canadians pay but do not see. For instance, the average Canadian family paid approximately $3,302 in profit taxes in 2012. Taxes on liquor, tobacco, and amusement amounted to $1,680 for the average Canadian family, while automobile and gas taxes totalled about $791. Finally, families paid $1,457 in other taxes that are not easily discernible (think: import duties).
Summed up, the average Canadian family faced a tax bill of $31,615 in 2012 against income of $74,113. That means 42.7 per cent of the family's budget went to paying for government. For perspective, in that same year 36.9 per cent of the budget went to paying for food, clothing, and shelter combined. Indeed, families now pay more in taxes that they do for basic necessities.
And it doesn't end there. Most federal and provincial governments are running budget deficits, meaning that current taxes do not cover current government spending. With these budget deficits, Canadian governments of today are putting off tax bills that will inevitably come due. Including deferred taxation (deficits) raises the total tax bill by an additional $2,417 to $34,032.
This year's tax deadline will bring mixed views on the appropriate level of income taxation in Canada. But it's critical for everyone to realize that the taxes delineated on their income tax returns are only part of the total they pay.
With a more complete understanding of the total tax bill, taxpayers can better assess whether they are receiving value-for-money in terms of the services they receive from government. Armed with this knowledge, we can hold our governments more accountable for the resources they extract.
This column was written with assistance from Milagros Palacios, Fraser Institute senior research economist.