Happy Tax Freedom Day?

Congratulations on reaching Tax Freedom Day. According to the Fraser Institute, today’s the day that we all stop working for the government and start working for ourselves.

Finance Minister Jim Flaherty also wants you to know that he’s very proud Tax Freedom Day came three days earlier this year than last year. Three less days this year of working for the Man.

The only problem with this happy scenario is that it’s not even remotely true. Tax Freedom Day is (unsurprisingly) an anti-taxation, anti-government event that has more to do with ideology than reality. Equally unsurprisingly, it relies on some fancy work with numbers to arrive at its conclusions.

Several years ago, the Canadian Centre for Policy Alternatives published a review of Tax Freedom Day by tax expert Neil Brooks of Osgoode Hall. Brooks highlights the deceptive nature of the annual report.

The study includes all forms of taxation from all levels of government – income tax, sales taxes, property tax, capital gains tax, corporate taxes, employers’ taxes, health, social security and employment taxes, import duties, licence fees, sin taxes, natural resources fees, fuel taxes, hospital taxes and more. I don’t know about you, but I didn’t pay any capital gains taxes, employers’ taxes or natural resource fees this year.

More problematically, however, only cash income is counted as income. So while all forms of taxes are attributed to families, only certain kinds of income count. Essentially, the report assumes that we’re paying taxes on income we’re supposedly not receiving.

If they really used the average family’s total income, Brooks concludes, Tax Freedom Day would come as much as two months earlier.

Equally important, average income is much higher than median income – especially because Canada’s income distribution is so uneven to start with. Therefore, the majority of Canadian families do not make as much income as the “average” family, nor do they pay nearly as much tax. So today really isn’t Tax Freedom Day for most of us, who’ve been off the hook for a month or more already.

Finally, by focusing on families with two ore more members, the Fraser Institute ignores unattached individuals. People living by themselves have lower incomes than those living with others – and they therefore pay less tax. This once again skews the statistics much higher than they actually are.

Even beyond the strategic use of numbers and statistics, Tax Freedom Day represents little more than a gimmick. Assume for a moment that it was true – that the amount of tax we paid compared to our incomes was so high that we worked half the year to pay off our taxes. Would you really describe that as working for the government?

As Neil Brooks points out, you might as well say that you work the second half of the year for Loblaws, Ford Motors, Canadian Tire and Famous Players. Or in my case, for the bank. Why does earning money for food, cars, mortgages and entertainment count as earning for yourself, but earning for health care, highways, fire departments, education and a pension when you’re old count as working for the government?

The whole concept suggests that we get nothing whatsoever in exchange for paying our taxes. In fact, another recent CCPA study suggests that all but the wealthiest of Canadians are getting more benefits from public services than they are paying in taxes to fund those services.

Personally, I’m also willing to pay more in taxes even if I don’t receive a direct benefit. Taxes are one way that we contribute to the common good. If paying taxes means that I live in a better country – more equal, fairer, healthier, better educated and less poor – than I’m happy to do that. It’s one way of loving my neighbour as myself.

I’m not the only one that’s frustrated by the Fraser Institute’s attempt to spin all taxes as bad. Andrew Potter of Maclean’s has been on a role recently, with several posts taking issue with their claims and ridiculing their idea of the tax-free society as the good society.

Similarly, Erin Weir of the Progressive Economics blog couldn’t help noting that the size of the deficit projected by Budget 2009 is pretty much equivalent to what Budget 2009 projected the government’s tax cuts would cost in lost revenue this fiscal year. Of course, the size of the deficit has grown since then, but one still can’t help noting that tax cuts contributed more than anything else to the size of our deficit.

Happy Tax Freedom Day, indeed!