Monday, October 26, 2009

Debunking the low taxes myth.

Albertan premiers have for a long time convinced Albertans that Alberta is the tax haven of North America. The last guy we had loved to talk about the Alberta advantage. The new guy wants us to think we have the freedom to achieve and tells us things like, "we have very low tax rates for people working in the province."

Either one of two things are happening for Premier Stelmach: he is trying to mislead us or he has no sense of what "working" people make.
He must not be talking about people who make between 30 and 80 thousand dollars a year. Because they could move to BC or Ontario and pay less in taxes.

This graph shows the amount of provincial personal income tax paid in 2008 by someone making $30,000, $50,000 and $70,000 of taxable income. If you're making $40,000 in Alberta you would pay $2,383.90 or 6% of your income to the province. Meanwhile, in BC you would be paying 4.2% and in Ontario you're paying 5%. (All data is calculated from Revenue Canada tax returns with only the personal deduction claimed)

In fact, as income levels rise, Albertans pay more tax than Ontarians until they start making $80,000. British Colombians save on taxes until they start making over $120,000.

The main reason for this, of course, is that Alberta has a flat income tax rate, while BC and Ontario have progressive tax rates. In fact, Alberta is the only province (and one of only a few jurisdictions) to have a flat tax.

We have it because we were duped.

In 2001 King Ralph moved Alberta to a flat tax and combined it with a tax cut. We bought the idea of a flat tax, because we liked the tax cut that happened to come with it. In actuality, the ones who really save with flat taxes are the wealthy.

To further support my claim that Alberta has revenue issues, this chart shows the 2008 personal income tax paid in 6 provinces, depending upon a person's taxable income.
In all of the other provinces as an individual's income level rises, the proportion taken for provincial taxes also rises. Except for Alberta, represented by the blue line, where the more you make the more you save.

There is an Alberta advantage alright - it's just felt most by those people who make the most money. Here are the tax levels for people earning $150,000 and $200,000 in the various provinces:
So while the Albertan making $40,000 is paying $693 a year more in taxes than his counterpart in BC, the Albertan who makes $200,000 is saving $3,874.
This provides for me two interesting alternatives. We could cut taxes for 6 Albertans by raising taxes on one siginificantly wealthier Albertan with no affect on the treasury. Or we could tax him at a level that all of the other provinces deem to be fair and save our public services.


cjlam1 said...

I am curious - in terms of total taxes paid to the province, how does Alberta rank when you consider that we don't have a provincial sales tax?

Atypical Albertan said...

I haven't done that research yet - it's much more complicated.

I suspect that you would find Alberta's revenue from taxation is much lower than other provinces. But that would have a lot to do with our incredibly low corporate tax rates and low taxes on high income earners.

I think the important question is why are the wealthy getting away with such a small tax burden when compared to other provinces? Remember, as well that my data does not factor in deductions - and who do you think are making more deductions, the middle class or the wealthy?

Tyler Shandro said...

Can you post your calculations or sources? I don't come to the same numbers as you. Did you include personal exemptions or credits?

An Albertan who is single with no children, earning $40,000, making no RRSP contributions, made no charitable donations, and has no medical or child care expenses, is only paying $2,073.

Maybe I'm wrong, but that's what I calculate.

Atypical Albertan said...
This comment has been removed by the author.
Atypical Albertan said...

I compiled the data on a spreadsheet, which I have posted here.

While I am not impervious to making mistakes, I am pretty confident in these calculations.

In Alberta, a $40,000 income earner pays 10% income tax after a basic deduction of $16,161. 10% of $23,839 is $2,383.90

Tyler Shandro said...

I think you have your Alberta calculations incorrect. I don't know about the other provinces, but the Alberta ones don't seem to include the Alberta Non-Refundable Tax Credits (ANRTC).

I still come to $2,073 for a single person with no kids (and all of the other assumptions I said before), who earns $40,000 per year.

A married person earning $40,000 with no kids and a spouse making 0, with no medical expenses, no donations, and no RSP contributions, will owe $395.

Atypical Albertan said...

The basic exemption of $16,161 is the only non-refundable tax credit I used. I did so to make the comparison clear and I was also clear about including no other deductions.

I stand by the Alberta calculation.