Numbers Game
Are the top 10 percent of Canadians overtaxed? Not if you look at who’s really anteing up
BY Ellen Russell and Sheila Block
Illustration by Rob Elliott/Swizzle
Want to push a dubious political initiative? Try using statistics taken out of context. Everyone else is doing it. For example, in an April front-page story, The Globe and Mail reported that the top 10 percent of Canadians pay 52 percent of the total tax bill. Should we conclude from this show-stopping statistic that the rich are overtaxed? Not if you look closely at the numbers.
The Globe news story was derived from a recent Statistics Canada report. What could be more credible than that? Statscan is practically the gold standard of rectitude in statistics!
The problem is in the way the statistics are interpreted—and in the case of this particular study, who is being counted. Why is it so important to scrutinize who is included in population statistics when we are interpreting them? Suppose we told you that the average net worth of Bill Gates and the guy down the street is $20 billion. That might give you the impression that this guy down the street is quite a wealthy fellow. Even if buddy down the street earns minimum wage at a fast food outlet, when paired up with someone as wealthy as Bill Gates their average net worth is sky high.
The lesson here is that if you take statistics out of context, you can draw all kinds of wonky conclusions. That’s why it is important to do some detective work before making conclusions—especially if you intend to trumpet those sensational conclusions in major newspapers.
The Globe story buried a somewhat sneaky aspect of the Statscan report: The report concerns tax-filers (that is, anyone who submits a personal income tax form), not taxpayers (people who file their tax form and have taxes payable).
Why does it matter? If we examine just tax-filers, without recognizing that their number is swollen with folks who pay no taxes, it looks as if the rich pay a larger proportion of total income taxes than everyone else.
Take three taxpayers: one low-income earner (who pays $10 in taxes), one middleincome earner (who pays $20) and one highincome earner (who pays $30). In this situation, the top third of taxpayers pays 50 percent of all of taxes collected. But add seven more tax-filers to the group, each of whom pays zero in taxes, and suddenly the top third of tax-filers pays 100 percent of the taxes. Yet the amount those three taxpayers actually pay hasn’t changed. Simple mathematics tells us that the percentage of taxes paid by the richest group of tax-filers will increase when the number of tax-filers who pay no taxes grows.
And guess what? The number of tax-filers who pay no taxes has grown. In 1990, 27 percent of tax-filers paid no tax; today, this number is 32 percent. Why the increase? Because social programs are increasingly being delivered via the tax system. Even if you are too poor to pay taxes, you have to file a tax return to receive provincial and federal refundable credits, like the child tax benefit and the GST credit.
Just because there is a growing number of tax-filers who pay no taxes, we can’t conclude that the income tax system has become more progressive. But by referring to tax-filers rather than taxpayers, the Statscan report can be easily misinterpreted to exaggerate the tax burden of the rich.
Using the publicly available 2002 tax data, and making a few minor adjustments to approximate the categories used in the report (because the government’s website doesn’t break down the information as the report does), we crunched the numbers to see how the year played out for taxpayers rather than tax-filers. The top 10 percent of taxpayers paid about $39 billion in taxes, while the top 10 percent of tax-filers paid $46 billion. By our calculations the top 10 percent of taxpayers paid about 45 percent of the tax bill, well below the 52 percent claimed by the Statscan report and repeated in the Globe. In the world of taxes, even one percentage point difference is a significant political issue.
The results are even more dramatic for the 50 percent of taxfilers with the lowest incomes. The bottom 50 percent of taxpayers paid about $11.4 billion in taxes, while the bottom 50 percent of tax-filers paid $3.5 billion. So, while the bottom 50 percent of tax-filers paid only four percent of the taxes, the bottom 50 percent of taxpayers paid 13 percent.
After doing just a little math, you might not want to rush to the conclusion that the rich are being soaked by Canada’s tax system. So don’t let right-wingers get away with the dubious application of statistics to generate momentum for more tax cuts for the rich.
