15 Jul 2023 5:49 am
As the U.S. has no national sales tax, this means more than one-in-four Americans see no direct cost for the federal government.
Even when all federal taxes are included, a significant percentage of Americans simply dont have any real skin in the tax game. In 2011, the bottom 40 per cent of earners in the U.S. paid just 2.9 per cent of all federal taxes while earning a little over 12 per cent of total income.
One of the reasons so many Americans are exempt from income and payroll taxes is the Earned Income Tax Credit (EITC). The EITC was originally introduced in 1975 to assist low-income workers in overcoming what was called the welfare wall. As low-income workers earn more income either by working more or getting better jobs, they often lose benefits and subsidies. The EITC was designed to assist them through this transition.
The problem is the EITC has grown from a targeted program for low-income workers to a general program benefitting many middle-class households. One sign of its expansion is that almost one-in-four American families now qualify for EITC benefits whereas only nine per cent qualified in 1975.
The building blocks for such problems are now present in Canada. In 2007, Canada introduced its version of the EITC, the Working Income Tax Benefit (WITB). In 2009, WITB was increased markedly, increasing in cost to a little over $1 billion from $480 million. This in part explains the increase in the percentage of Canadian tax-filers who face no federal income tax, which has already increased to 37.7 per cent in 2010 from 32 per cent in 2000.
The experience of the United States is a cautionary tale for Canadians as we potentially begin down a similar path. That is not, however, to say that we do not favour tax relief. Indeed, we have repeatedly explained why large-scale personal income tax relief must be on the agenda over the course of this decade. It is the one area of taxes where Canada remains woefully uncompetitive.
The key to tax relief is that it balances the need for lowering the burden of government (i.e. reducing tax rates) against having citizensexcluding those with low incomepay some visible price for government. (The GST achieves much of this latter goal, which is one reason we opposed its reduction.)
That balance looks something like a dramatically simplified income tax system with fewer and lower tax rates, a drastic reduction in the loopholes, privileges, and tax credits in the tax system, and a national sales tax. In other words, we need tax cuts but the right ones.
https://www.fraserinstitute.org/article ... -cuts-good
Even when all federal taxes are included, a significant percentage of Americans simply dont have any real skin in the tax game. In 2011, the bottom 40 per cent of earners in the U.S. paid just 2.9 per cent of all federal taxes while earning a little over 12 per cent of total income.
One of the reasons so many Americans are exempt from income and payroll taxes is the Earned Income Tax Credit (EITC). The EITC was originally introduced in 1975 to assist low-income workers in overcoming what was called the welfare wall. As low-income workers earn more income either by working more or getting better jobs, they often lose benefits and subsidies. The EITC was designed to assist them through this transition.
The problem is the EITC has grown from a targeted program for low-income workers to a general program benefitting many middle-class households. One sign of its expansion is that almost one-in-four American families now qualify for EITC benefits whereas only nine per cent qualified in 1975.
The building blocks for such problems are now present in Canada. In 2007, Canada introduced its version of the EITC, the Working Income Tax Benefit (WITB). In 2009, WITB was increased markedly, increasing in cost to a little over $1 billion from $480 million. This in part explains the increase in the percentage of Canadian tax-filers who face no federal income tax, which has already increased to 37.7 per cent in 2010 from 32 per cent in 2000.
The experience of the United States is a cautionary tale for Canadians as we potentially begin down a similar path. That is not, however, to say that we do not favour tax relief. Indeed, we have repeatedly explained why large-scale personal income tax relief must be on the agenda over the course of this decade. It is the one area of taxes where Canada remains woefully uncompetitive.
The key to tax relief is that it balances the need for lowering the burden of government (i.e. reducing tax rates) against having citizensexcluding those with low incomepay some visible price for government. (The GST achieves much of this latter goal, which is one reason we opposed its reduction.)
That balance looks something like a dramatically simplified income tax system with fewer and lower tax rates, a drastic reduction in the loopholes, privileges, and tax credits in the tax system, and a national sales tax. In other words, we need tax cuts but the right ones.
https://www.fraserinstitute.org/article ... -cuts-good