Thank you, Mr. Chair. I timed it to five minutes. Hopefully I can keep it to that this time around.
I'd like to thank the committee today for their invitation to speak. There are certainly a great many interesting topics that emerged from this year's budget. The focus on on-reserve infrastructure, particularly schools, clean water, and housing, is very positive and long overdue. The improved child and senior benefits will both reduce poverty rates among those groups by several points. I was surprised to see this fact was not better highlighted in the budget, actually.
However, today I'd like to focus on the tax bracket trade, specifically the creation of a new top income tax bracket whose proceeds are used to pay for a cut in the second bracket.
Now to be clear, we've advocated for a new top bracket for some time, particularly given the large income gains enjoyed by the wealthiest over the past two decades, although to maximize revenue from this new bracket, two additional measures are necessary. One is the prosecution of illegal tax evasion, and the other is the closing of tax loopholes.
Successful prosecution will be substantiated by new auditors budgeted for in this budget, and hopefully this committee will also examine and close tax expenditures or tax loopholes that allow the richest to avoid paying the statutory rate, a rate which most Canadians pay.
While I am in favour of a new top bracket, using its proceeds to reduce the rate in the second bracket is in effect an upper class tax cut, as I show in more detail in my paper “Real Change for the Middle Class”, which I believe you have a copy of.
I should point out that there's no official definition of the “middle class”, but undoubtedly it is going to have some relationship to the middle of the income spectrum, or median income, which is just over $60,000 for families or just over $30,000 for individuals.
Now, the second bracket doesn't even start until one makes at least $45,000, or 50% more than the Canadian median individual income. Without being in the second bracket, there can be no benefit from the rate cut proposed here. However, the full benefit of that rate cut isn't available until one makes $90,000 individually, or three times the median income, and that full benefit will be available to those making up to $200,000 when the new bracket kicks in.
I'd like to call your attention to Figure 2 on page 5 in my report, which shows quite clearly that the largest benefits go to the top 10% of families, who are making over $170,000, excluding, of course, the top 2% of families, who are making over $300,000 and will pay substantially more due to the new top bracket.
The upper-class 10%, excluding the very top, will see, on average, almost $800 more per family after the bracket trade. Families making between $170,000 and $300,000 are, I hope, no one's definition of the middle class, but they are by far the largest beneficiaries of this bracket trade.
However, the middle deciles that you can see better in Figure 2 on page 5 see surprisingly little of the benefit of the bracket trade. For instance, the lower middle class, the fourth and fifth deciles, see an average benefit of only $30, compared to the richest's almost $800. The upper middle class of deciles 6 and 7 do better, making about $175 a year, but again this is only a quarter of what the wealthiest make, at $800 a year.
The paper examines four other possibilities that use pre-existing tax transfer mechanisms to spend roughly the same amount, or roughly $3 billion, while attempting to better target the middle class.
The options examined are dropping the rate in the lowest bracket, increasing the basic personal exemption, increasing the GST credit, and increasing the working income tax benefit, or WITB. Any of these measures provides more benefit to middle class families. For instance, the WITB option would provide $350, on average, to lower-middle-class families, or 10 times more than the $30 they would make with the cut in the second bracket.
I'd encourage committee members to examine these alternative possibilities as more effective options than a rate cut in the second bracket, as described in the budget.
It is worth pointing out that roughly $3 billion raised by the new top bracket is a fair amount of money. I'm not sure that money should be spent on a tax measure. For instance, $3 billion annually would be sufficient to eliminate undergraduate tuition. It would also be sufficient to halve the fees for long-term care for the elderly or dramatically increase home care and caregiver respite supports, measures that will likely have more visibility than changing how much is deducted at source for most Canadians.
Thank you very much. I look forward to your questions.