Yoshidaism

How the HST Helps Screw the Middle Class

June 9, 2010 on 5:57 am | In Uncategorized | No Comments

Various Liberals have assured me that the new Harmonized Sales Tax is “revenue-neutral.”  And, up to a point, that’s true.  When the accounting is done the government probably won’t be actually collecting more tax money or increasing the deficit as a result of this thing.  However, such a claim deliberately evades the truth that, while the HST isn’t going to increase the amount of money that the government has to spend, it’s still going to increase the amount of taxes that middle class individuals such as myself – and perhaps most of you – pay.  It’s just that, instead of directly spending that money the Province is going to redistribute it to other people in the form of welfare payments disguised as “tax credits.”

Most British Columbians probably aren’t aware that the choice that successive governments have made in using the tax system to create individual subsidies in the form of various tax “benefits” and “credits” has created a new welfare system that results in the middle class paying disproportionately higher taxes.

Under the HST, individuals will be eligible for sales tax credits of up to $230 a year.  These credits, however, will quickly be phased out as your income goes up – so quickly phased out that almost no middle-class taxpayers will ever see a dime of them.

A host of other benefits created over the last few decades such the GST credit, the Canada Child Tax Benefit, the Low-Income Climate Action Tax Credit, the Universal Child Care Benefit, and the BC Tax Reduction Credit have similarly been presented to the public as tax measures rather than a form of social assistance.  The result is a system that, because individuals pass into higher tax brackets and face clawbacks of benefits at the same time, is far more sharply “progressive” than could possibly have been intended.

Consider some of the strange effects of this patchwork system:

- A single parent of two children sees their after-tax income increase by only $4361.12 when going from making $30,000 a year to $40,000.  In other words that parent would see 56.4% of their additional income going back to the government in either benefit clawbacks or direct taxation.  Worse, when one considers that most of that $4361.12 is likely to be spent on taxable items that means that they’ll really end up with thirty-something percent of that money.

- A single person whose income increases from $20,000 to $30,000 sees the amount they pay in direct taxes go up 287% while their income increases by 50%.  Someone who doubles their income from $20,000 to $40,000 sees their tax bill increase by 476% from a net total of $1649 a year to $7852.

In other words, what we’ve created with sharply progressive tax rates and a bevy of tax credits is a sharply redistributive system that hits part of the middle class especially hard.  It is hard, in my opinion, even for a socialist to think of the moral justification for someone making $40,000 to end up paying 500% as much as someone making half of that.  For that matter, I think that it’s pretty hard to justify a childless person making $50,000 to be paying $5000 a year more than someone with the same income with a child, especially when one considers that a large part of the additional $5000 the first person is making will go towards paying for benefits for the child of the person paying less.

This a combined Federal-Provincial issue, but the size of the transfers that have been pushed through by the BC Liberals alone is surprising.  Someone making $20,000 a year would be getting $230 a year in the form of the HST Tax Credit, $105 in the “Climate Action” tax credit, and another $84.67 in the form of the BC Tax Reduction Credit – all subsidies that someone making $30,000 a year would not receive (and would pay for to some extent).  Now, I’m against wealth redistribution in general, but I’d think that even most ardent socialists would agree that a system that redistributes from people making $30,000 to people making $20,000 is off-kilter.

Perhaps the HST isn’t the most egregious offense.  $230 isn’t going to be the end of the world.  But it’s enough.  If we wanted to elect people who’d raise our taxes to give money to other people they feel deserve it more then we’d vote for New Democrats.