Federal study details workers hardest hit by tax and benefit system for extra income

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Recently released documents show that finance ministry officials have calculated that workers near the bottom of the income scale are hit hardest by extra income than anyone, including those at the top.

Besides paying more taxes, earning extra money can mean losing other poverty reduction benefits.

Understanding who loses more and wins more and what federal programs are involved “can guide the development of approaches to lighten the burden … and encourage extra work,” officials wrote in the documents.

Workers with modest incomes, between about $ 25,000 and $ 34,000, lost $ 413 for every $ 1,000 in additional earnings, the highest payback of any income level.

Right behind them were the richest 10 percent of working people, with incomes over $ 114,570, who gave up $ 402 for every $ 1,000 in additional earnings.

Paying more taxes was the culprit for those doing the most, while those near the bottom faced a double whammy in taxes and a cut in income-tested benefits, like the Canada child benefit.

According to recently released documents, workers with modest incomes, between about $ 25,000 and $ 34,000, were hit by the highest recovery of any income level. (Primestock Photography)

Overall, the country’s 19 million workers lost an average of $ 341 for every $ 1,000 increase in their earnings based on 2017 data, but the burden was greater for workers with children.

Officials noted that not doing much better, or doing even worse, after an increase in income could discourage employed people from taking on extra work and could prevent others. of the labor market.

The latter situation was one that the documents describe as particularly pronounced for “secondary employees”. These are people who earn less money than their partners – usually women.

A thorough review of the tax system is essential, says expert

The Canadian Press obtained a copy of the reports and related briefing note under the Access to Information Act.

The reports were delivered in early November 2019 – days after the federal election which saw the Liberals return to power with a minority in the House of Commons – and came as the public service struggled to resolve a series of issues that were faced an aging workforce.

Experts who reviewed the documents suggested that the findings could help guide federal efforts now as the Liberals try to slap taxes and benefits from the pandemic.

Elliot Hughes, who was tax policy adviser to former Finance Minister Bill Morneau, said a thorough review of the tax system appears to be a must to determine how the country can ensure that those who need help get it, while not creating disincentives to work.

It’s politically problematic and it would probably take two years, Hughes said, but “I don’t know how you are avoiding one now.”

“COVID and all the benefits that have been added – and all the challenges that COVID has exposed or accelerated – make a review of taxes and support and benefit programs … even more important than ever,” said Hughes, now an advisor. senior at Summa Strategies.

Impact on labor market participation

Recovering benefits faster as incomes rise may not help promote labor market participation, said Garima Talwar Kapoor, director of policy and research at Maytree, an anti-poverty think tank.

Talwar Kapoor also said that any conversation about taxes and benefits should take into account other issues that affect work decisions, such as the cost of childcare, access to dental benefits through the health care plan. ‘an employer and whether the job itself is attractive.

“There are a number of factors that are important when people decide whether they are going to work or not and whether the design of government matches public policy,” she said.

“I’m afraid that without really thinking about good jobs, we often don’t cut back on the benefits provided without thinking about the impact that has on people in the longer term.”


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