"Taxes," according to the famous quote attributed to Oliver Wendell Holmes Jr., "are the price we pay for a civilized society."
Fair enough. But Holmes didn't put a price tag on the notion of a civilized society. How much are you willing to pay? Or put another way, how long in the year would you be willing to work to pay for all the stuff government does?
In 2013, Canadians worked until June 10, which happens to be Tax Freedom Day, to pay all their taxes.
Tax Freedom Day is an easy-to-understand measure of the total tax burden imposed on Canadian families by federal, provincial, and local governments. If you had to pay all your taxes up front, you would give governments each and every dollar you earned before Tax Freedom Day.
If working until June 10 sounds like a long time, it's because the taxes we pay extend well beyond the income tax we see deducted off our pay cheques. In fact, the total tax bill for a typical Canadian family includes a dizzying array of taxes, including visible ones like income taxes, sales taxes, payroll taxes, and property taxes as well as hidden ones like profit taxes, gas taxes, import duties -- and the list goes on.
In 2013, we estimate that the average Canadian family consisting of two or more people will pay a total tax bill of $42,400 or 43.6 per cent of their annual income. This results in Tax Freedom Day falling on June 10. It's only from then on that Canadians start working for themselves and their families instead of government.
While that may be reason enough to celebrate, keep in mind that Tax Freedom Day arrives two days later than last year. And it's no wonder why; governments across the country have recently increased taxes in an effort to make up for years of overspending that has resulted in multi-year deficits.
This past year alone, British Columbia and New Brunswick increased personal and corporate income taxes (BC also raised its health tax), Manitoba increased its provincial sales tax, Quebec increased its top income tax rate, Prince Edward Island increased its tax on small businesses, and Ottawa increased Employment Insurance premiums.
And then there's Canada's progressive tax system which imposes a higher total tax burden on families as their incomes increase. As incomes have recovered from the 2008-09 recession, the average tax burden has grown to a greater extent, causing Tax Freedom Day to come later.
An example of Canada's progressive system: the top fifth of income earners face an average total tax burden amounting to 52.4 per cent of income while the bottom fifth face an average burden of 17.3 per cent. Indeed, the more you earn, the more of your income goes to paying taxes.
But the true tax burden doesn't end with the revenues that governments collect. The reality is, governments often spend more than their revenues allow and then borrow the difference. In other words, they incur deficits.
This year, the federal and six provincial governments are planning to incur deficits totalling $34 billion. (Ottawa expects a deficit of $18.7 billion while the provinces cumulatively expect deficits of $15.3 billion). According to our calculations, Tax Freedom Day would come nine days later this year, on June 19, if Canadian governments covered their current spending with even greater tax increases instead of borrowing the shortfall.
The trend of governments relying on borrowed money began years ago. From 2007/08 to 2012/13, Canadian governments ramped up total government debt by $372.2 billion. Since this additional debt must one day be paid for by taxes, Tax Freedom Day may actually come later in the future. By kicking today's debt down the road, governments are effectively passing on the burden of repayment to young Canadian families.
Back to Holmes and the price tag of a "civilized society." Is working until June 10 acceptable for what we get from government? While it's ultimately up to individual Canadians to decide, therein lies the value of Tax Freedom Day; it at least gives them the information they need to make that assessment.
Watch our new Tax Freedom Day video to learn more about the many taxes we pay.
Milagros Palacios contributed to this column. She and Charles Lammam are co-authors of Canadians Celebrate Tax Freedom Day on June 10, 2013.