Does $64,500 a year make you wealthy?

As I pointed out on this site a few weeks ago, high income earners in Canada get screwed at tax time. I am also firmly in favor of a flat income tax. The following article by Lorne Gunter appears in today's National Post and helps support that theory.

Money for nothing

Alexander Fraser Tytler, an 18th-century Scottish economist, is sometimes quoted as having said, "A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits."
There are reasons to believe Tytler didn't say this (not the least of which is that the book the quotation is alleged to have come from doesn't exist). But whether Tytler's or not, the prediction is coming true in Canadian politics. Regardless of who wins today's election, the disconnect will continue to grow between those who vote for more benefits and those who are obliged to pay for them.
As the overwhelming share of the tax burden is shifted on to the backs of fewer and fewer wealthy taxpayers -- all in the name of fairness and progressivity, of course -- the majority of voters are getting used to voting for big-time benefits, while at the same time being pretty confident someone else will be made to pay for their new booty.
According to a StatsCan report released last April, "the one-tenth of Canadian tax filers who were in the highest earnings bracket provided more than one half of the revenue from federal personal income tax in 2002 ... In addition, their share of the tax pie has been increasing since 1990."
Meanwhile, everyone else's share has been decreasing.
"In 1990, this 10% of tax filers accounted for 46% of total federal personal income tax; by 2002, this group accounted for 52.6%."
That's only fair, you say. The rich should pay more.
OK. Except in Canada you don't have to be truly "rich" to be in the top 10% of earners. The top 10% in the United States starts at around $130,000 (in Canadian dollars) a year. Here, it kicks in at $64,500. That means a lot of teachers, nurses, reporters and tradesmen are in the top 10%, not career groups one normally associates with being "rich."
Changes made to federal income taxes in late 2000 resulted in nearly all Canadians' tax payments flattening out, or even falling (slightly), beginning in 2001. But they fell least for the top group.
Income for the top 10% rose 4% in real terms between 1990 and 2002. And, admittedly, they were the only Canadians to see an increase after inflation. The bottom 50% suffered an income decline of 2.1%. And the 40% of Canadians often termed middle class witnessed a 4.3% decline.
But for both low-income earners and the middle class, income losses were more than offset by tax reductions; whereas with upper earners, income gains were more than consumed by tax increases. Over the 1990-2002 period, top earners were the only group that fell back in net terms.
The bottom half of tax filers --those earning $23,000 or less in 2002 -- saw their share of the national income pie drop 2.1%, but that was accompanied by a drop of 2.3% in their tax share. Middle-class filers -- those making more than $23,000, but less than $64,500 -- saw their share of total national income fall 1.9%, but their share of the tax burden fell 4.3%. Meanwhile, the top 10% saw their incomes go up 4.0%, but their taxes shot up 6.6%, a net loss of 2.6%.
All the gains made by the lower 90% came directly out of the pockets of the top 10%.
We now have a situation in Canada where the bottom 50% of filers earn 16.9% of the income, but pay just 4.4% of the taxes. Middle-income earners earn 47.4% of the income, but pay just 43% of the personal income tax, while the top 10% earn 35.7% of the income, yet -- as noted above -- pay 52.6% of tax.
Almost half of Canadian income earners can now feel confident in voting themselves more benefits from the public treasury without seeing their own income taxes raised to pay for them. They might even see their taxes lowered as their payments from government are raised -- it happened in the 1990s.
This creates a dangerous imbalance in a democracy.
If you can have virtually limitless benefits for "free" ... well, who wouldn't vote for that? But it badly distorts the public policy choices made when only a fraction of citizens has to pay for the desires of the majority.

Four points jump out at me from this article:

1. Those who vote in favor of more social programs are not likely to be the ones who actually have to pay for them. Gunter correctly points out that this disconnect will only grow in the future.

2. "The bottom 50% of filers earn 16.9% of the income, but pay just 4.4% of the taxes." How is this in any way, shape, or form a fair tax system? Especially when "the top 10% earn 35.7% of the income, yet -- as noted above -- pay 52.6% of tax."

3. The top ten percent of income earners in Canada starts at $64,500. That boggles my mind and my first thought is that it's a typo. That figure is utterly depressing and shows how repressive corporate taxes have artificially dragged down wages in this country. Salaries are not even close to where they should be for such a developed and educated country as Canada. It makes me think of when Svend Robinson claimed anyone making over 60K was wealthy. Most of my peer group makes over 60K and I would hardly consider us to be wealthy.

4. The current Conservative Party has lost their conviction and will do very little to change any of these facts. Count me among those who are completely and utterly disappointed with Stephen Harper's recent policy overhaul.