Are tax savings claims full of baloney?
The Canadian PressThursday, May 08, 2014
OTTAWA - "Our low-tax plan equals savings of nearly $3,400 for a typical family of 4."
— Facebook post by Finance Minister Joe Oliver, May 1
The Conservative government claims measures it has put in place since coming to power now save the average working family of four almost $3,400 each year in taxes.
To illustrate these tax savings, the latest budget introduced the fictitious family of Blake, Laurie and their two children, much as two previous budgets featured similarly made-up families to highlight tax-relief measures.
Since then, Conservatives from Prime Minister Stephen Harper on down have repeated the tax-savings claim. But how accurate is it?
Spoiler alert: The Canadian Press Baloney Meter is a dispassionate examination of political statements culminating in a ranking of accuracy on a scale of "no baloney" to "full of baloney" (complete methodology below).
This one earns a rating of "a little baloney" — the statement is mostly accurate but more information is required. Here's why.
First, let's look at exactly what the Conservatives are claiming. The budget says Blake and Laurie earn a combined income of $120,000 before taxes (he earns $48,000 and she earns $72,000).
The budget says they will pay $2,326 less in personal income tax because they save $856 from "broad-based income tax relief," such as a reduction in the lowest personal income tax, and $1,470 from tax credits.
Blake and Laurie will save another $1,071 because they pay less GST — it's two percentage points lower than when the Conservatives took office in 2006.
That all adds up to $3,397 in tax savings.
Now, let's look at how the government arrived at those figures.
Documents obtained under the federal Access to Information Act show how the government calculated the tax savings for a two-earner couple with children. They can be seen here: http://www.scribd.com/doc/222736514/How-credible-are-the-government-s-claims-of-tax-savings
Government officials determined the average income for a two-earner family with children based on projections from the fall 2013 economic update and T1 data collected by the Canada Revenue Agency, the documents say.
The average income, based on those projections and data, is $120,000.
The government says the mean income in 2013 was $115,000, or $5,000 less than 2014. So Blake and Laurie earned more money in 2014 — which the documents say saved the fictional family $162 on their taxes.
How? With more money to spend, they'll spend more, and pay less GST (five per cent, down from seven) on that spending — $71 less in this particular example, the government figures.
Blake, who earns less than Laurie, will also save $91 on his taxes because of changes the Conservatives made to the tax brackets.
Before those changes were made, a larger portion of Blake's earnings would have fallen into a higher tax bracket. Now, more of his money is taxed at the lowest rate. Together, the GST and tax-bracket savings add up to $162.
An increase in indexation — a way of offsetting inflation by tying variables such as taxes or wages to the consumer price index — accounts for another $15 in tax savings, the documents say.
Further savings can be found in the various Conservative tax credits — and this is where the government relies on a few assumptions to arrive at its savings total.
Assumption 1: Blake and Laurie claimed $500 for each of their children under the children's fitness tax credit;
Assumption 2: They claimed $500 for each child under the children's arts tax credit;
Assumption 3: The whole family claimed $1,040 under the public-transit tax credit;
Assumption 4: Because both children are under six, they each qualify for a yearly Universal Child Care Benefit payment of $1,200 ($1,020 after taxes) and another $83 in increased child tax benefit payments.
The government says broad-based relief — reducing the lowest personal income tax rate by one percentage point, increasing the upper limit of the lowest tax bracket and increases in the basic personal amount — saves the average family another $856.
Added to the tax credits and GST cuts, the savings work out to almost $3,400.
WHAT THE EXPERTS SAY
Martha O'Brien, a professor at the University of Victoria who specializes in Canadian tax law, says the $3,400 figure seems reasonable.
"You can cut it all kinds of different ways, obviously, but I couldn't criticize that $3,400," she said. "I think it might actually be a bit low."
She did wonder, though, whether a family like Blake and Laurie's actually exists.
"I think you could say some of their assumptions about two children under six who are also doing all these activities and having $2,000 a year spent on it might be unlikely," O'Brien said.
"It's also unlikely that if they're going to all these activities, that one of the parents can leave the car at home — or even both of them can — because they'd be riding the buses a lot."
Allan Maslove, a professor at Carleton University's School of Public Policy and Administration, agrees the $3,400 figure isn't out of the ordinary — for this particular family.
"They've clearly manufactured an example here to allow them to claim every absolute tax credit and benefit that they've put into the tax system," he said.
"I think it's unlikely that any given average family would be eligible to claim all of these things. So in that sense, they've probably overstated it a bit."
Both experts agree the government isn't over-reaching with its $3,400 tax-savings claim.
That said, the figure is based on assumptions that might be somewhat unrealistic, such as a family with two working parents and two children under six spending $1,040 on public transit and $2,000 to put both kids into arts and sports programs.
That family may well exist, but it's hardly "typical." That's why the government's claim contains a little baloney.
The Baloney Meter is a project of The Canadian Press that examines the level of accuracy in statements made by politicians. Each claim is researched and assigned a rating based on the following scale:
No baloney — the statement is completely accurate
A little baloney — the statement is mostly accurate but more information is required
Some baloney — the statement is partly accurate but important details are missing
A lot of baloney — the statement is mostly inaccurate but contains elements of truth
Full of baloney — the statement is completely inaccurate
Facebook post by Finance Minister Joe Oliverhttps://www.facebook.com/FansofJoeOliver/posts/554624801236418
Income of Canadians, 2011http://www.statcan.gc.ca/daily-quotidien/130627/dq130627c-eng.htm
Market income, government transfers, total income, income tax and after-tax income, by economic family type, 2011 constant dollarshttp://www5.statcan.gc.ca/cansim/a26?lang=eng&retrLang=eng&id=2020702&pattern=%22income+tax%22&tabMode=dataTable&srchLan=-1&p1=1&p2=-1
Canadian income tax rates for individuals - current and previous yearshttp://www.cra-arc.gc.ca/tx/ndvdls/fq/txrts-eng.html
Documents obtained under the federal Access to Information Acthttp://www.scribd.com/doc/222736514/How-credible-are-the-government-s-claims-of-tax-savings