William Watson: Liberals promise to raise income you’re allowed to earn before paying tax for basic needs — except if you’re rich | Financial Post

We have now reached the point at which everything is a gift from the government. Even when the government declines to tax you, that is not your right, it is the government’s gift.

Consider the Liberals’ promise to raise the “Basic Personal Amount,” the income you’re allowed to earn without having to pay any income tax on it at all. They propose to raise it from its current value of $12,069 to $15,000. (How did it come to be a strange number like $12,069? It’s indexed to inflation and inflation isn’t especially neat. Maybe the Bank of Canada could work on its tidiness.)

Why do we have a Basic Personal Amount (BPA)? The Liberal backgrounder explains that “to help every Canadian cover their most basic needs, no tax is collected on a certain amount someone earns.” That principle goes back several hundred years in the theory of taxation. In most such theories, tax should be levied only on discretionary income, that is, income you have some choice about spending. But we all have basic needs. Even rich people have to eat a certain number of calories per day, put some sort of roof over their head, brush their teeth (or hire someone to brush their teeth for them) and so on. It wouldn’t be right to tax income needed to procure these essentials. But it wouldn’t be right for everybody because everybody — rich or poor, young or old — has basic human needs.

So having a slice of income the government doesn’t touch makes perfect sense. And makes perfect sense for everyone, because everyone has these basic needs. But the Liberals don’t agree. They promise to recognize the basic needs of everyone making up to $147,667 a year but beyond that they will claw back the increase in the BPA so that people making more than $210,371 a year only get the old $12,069 BPA, not the new $15,000 BPA everyone else will get.

So people lower down the income scale will get a higher basic allowance — to cover “their most basic needs,” remember — while people higher up will have to do with the existing allowance. Do they actually have lower basic needs? A lot of the rich people you see on the society pages do look very slim, some even dangerously slim. Maybe they get by on fewer calories than the rest of us. Maybe their basic needs really are lower.

The Liberal backgrounder isn’t very explicit about why they claw back the BPA. It only says it’s to make sure “the top one per cent don’t get any additional benefit.” Here’s where the idea of everything being a gift of the government comes in. If you shelter a dollar of a rich person’s income from tax — even for the purpose of allowing essential human expenditures — that will reduce the rich person’s taxes by a larger dollar amount than sheltering a dollar of a poorer person’s income from tax would do. Why is that? Because the rich person pays a higher rate of tax than the poor person. So sheltering even basic needs does provide a bigger tax reduction to rich people than poor people.

But if your idea is to shelter essential spending from taxation, that doesn’t matter. If justice requires that no one pay tax on the money they need to buy essentials, then justice requires that whatever taxes they’re currently paying on that tranche of income go to zero. People who are paying more taxes will obviously get a bigger “tax break” out of that. But, to repeat, justice is that taxes on that amount of income go to zero, so differential tax impacts shouldn’t be a problem. Richer people paying higher taxes on that basic amount were suffering a greater injustice. The end result we want is that nobody pay tax on it. If getting to zero requires a larger tax cut for rich people than poor people, so be it. Zero is what’s fair.

But in this age of government of the government, by the government, for the government, that’s not how things work. The BPA is not a tax sanctuary the government may not enter. Rather, it is a gift from the government. And in 2019 no gift can be tilted toward the top end of the income distribution. So under the Liberal proposal, people in the first three tax brackets get $15,000 clear to cover their basic needs, while people higher up get less than that or in fact nothing. Actually, some get less than nothing because their marginal rate goes up a tiny bit: for every dollar of income they earn they pay their regular taxes but now also lose a bit of this “benefit.”

As it happens, StatCan’s latest numbers on who pays how much income tax came out Tuesday. The top one per cent of taxpayers make 9.9 per cent of all income, it’s true, but they pay 21.3 per cent of all income taxes. By contrast, the bottom 50 per cent of taxpayers make just 17.8 per cent of all income and pay only 4.6 per cent of all income taxes. Get that? The one per cent pay more than a fifth of all federal income tax. The bottom half of tax-filers — half — pay under five per cent of all federal income taxes.

A question for the parties: How much farther do we go in this direction? At what stage does your party deem the system to have reached “fairness?”

This content was originally published here.

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