Yesterday, the Fraser Institute released its Consumer Tax Index report, which claims to show that the average Canadian family’s tax bill has increased by a whopping 1,624% since 1961. There are a lot of things wrong with Fraser Institute’s math. Here are just a few of them.
To begin with, the numbers should have been adjusted for inflation — something the Fraser Institute did not do. A dollar in 1961 bought a lot more than a dollar today buys, so is it doesn’t make sense to compare the tax bill in 1961 dollars to the tax bill in 2009 d0llars. Once adjusted for inflation, that 1,624% increase shrinks to just 137%.
On top of inflation, we need to consider that incomes also grew over the last half century, so the tax bill would have grown even if we paid the same proportion of our income in taxes in 2009 as in 1961.
What we need to compare, then, is not the change in absolute dollars that families pay in taxes, but the change in the share of family income that goes to pay for taxes.
In 2009, the average family paid 41.7% of their income in taxes (at least according to the Fraser Institute — but they count business taxes as part of the family tax bill, which is highly problematic as I explain in a previous post).
In 1961, families paid 33.5% of their income on taxes, but by 1969 they were paying 39% and in 1974 they paid 43.4% of their income. So, if you compare the 2009 effective family tax rate to 1961, you will find a 25% increase, but you will only find a 7% increase since 1969 and an actual decrease since 1974. Therein lies the peril of summary statistics – calculating the percent change over time crucially depends on your starting and ending point. A few years either way would result in completely different numbers.
And we wonder why people are so suspicious of statistics.
The best way to avoid this kind of statistical tricks is to show as much of the underlying data as possible and let people see the patterns for themselves. The Fraser Institute reports plots taxes as a share of income in Figure 4 of their report, which I have pasted below.
The Fraser Institute’s conclusion that “the average Canadian family’s tax burden has been rising steadily for the better part of 48 years” is clearly not supported by their own graph.
The share of income going to taxes rose quite fast in the 1960s and in the decade between 1976 and 1985 but has hovered around 45% ever since. This graph clearly demonstrates that the latest Fraser Institute report is much ado about nothing – the effective tax rate as a share of average family income has been stable over the past quarter century.
The Fraser Institute’s alarm over tax increases captures the tax increase over the 1960s, when many of Canada’s core social programs, such as Medicare, were first established.
No news here, folks, unless you are interested in picking up some tricks on how to present statistics in a way that makes the growth of a spending item of your choice appear larger than it really is.
WealthWebGuru // Apr 27, 2010 at 11:24 am
Well done Iglika, I was asked to comment on this report as well and although I did not go into the analytical detail you presented, my conclusion is much the same. It’s so easy to pick on taxation but we have to look at the bigger picture to understand what the taxes have given us in terms of quality of life. I’d take life in 2010 over life in 1961 in a heartbeat even if it meant more tax!
Are Taxes In Canada Really That High? // May 18, 2010 at 2:02 am
[...] Iglika Ivanova , Public Interest Researcher at the Canadian Center for Policy Alternatives responded to the report issued by the Fraser Institute outlining some very significant flaws in their analysis: Have taxes changed all that much over the past half century? [...]
Frank // Jul 6, 2010 at 6:38 pm
Why tax people anyway.
It’s Capitalism…
…not Humanism.
The time is long past for an extended Tobin or Robin Hood tax
mike // Mar 12, 2011 at 6:32 am
Taxes are really that high we are the highest paying country in the world when it comes to taxes, we pay more taxes then any other nation, our quality of life as worsen, please dont tell me we are the best in the world I have traveled Europe one large home paying $144 euros, United states a parcel of land $35 dollars canada a smaller home pays about $3,000 dollars wages have not really increased. I used to earn $10.50 in 1990 now $12.07 and at the end of the year back to mininum wages with work closing and most people are working low incomes. Inflation as increased but wages have not kept up with the increases. Taxes go up every year I have not seen a wage in crease in two years as it froze due to the inconomy.
Our tax dollars are being waisted without consideration for the people who are paying. Most people I have talked too are conserned that soon they will not be able to afford their homes with high municipal taxes. example city of Cambridge Ontario had the choice to purchase a property for $12 million but choose to build for $30 million at the cost of tax payers not considering that people have to pay those taxes with annual increases.
Taxes can be dropped down and not affect the way of life like health care or other social standars as the most affecting the tax cost in Canada is the municipal taxes increasing that is hurting canadians and these taxes do not affect health care but the municapla governments are waisting Canadians money without consideration of their weall being and blame other levels of government. Yes our taxes are the hightst in the world and there is no sign to end it.
I think its time Canadians stand up and do something about our lack of leadership and viscal responsibility,