BC Tax rates
Posted March 25, 2009 by Sacha Peter - Link
Category: Analysis
Comments (8)
There is one issue that the provincial government has undeniably exceeded at, and that is reducing personal income tax and corporate income tax rates.
Personal Income Taxes
Throughout the years, the “low rate” applies for income generally under $30,000. I will define “middle rate” as a $50,000 income earner, and a “high earner” is roughly that making over $90,000. Please note that indexing to inflation increases these numbers over time, so these are very gross approximations. Anytime one talks about taxation, there are always nooks and crannies that have to be explained, but I don’t want to be bothered with specifics here.
In the year 2000, the lowest marginal tax rate was 8.4%, the middle rate was 12.4% and the high rate was 20.8%. The basic tax credit amount was $7,200.
In 2001, one of the first things the Campbell government did was reduce taxes by 25% across the board – a low rate of 7.3%, middle rate of 10.5% and a high rate of 16.7%. This was also the first year the provincial government could independently set the basic tax credit – and the government set it to $8,000.
In 2005 (which is a more reasonable barometer to assess the last four years), the low tax rate was 6.05%, the middle rate 9.15% and the high tax rate was 14.7%. The basic tax credit was $8,676, but this was strictly due to inflation and not any government policy change.
Right now, income in 2008 has a low rate of 5.06%, a middle rate of 7.7% and a high rate of 14.7%, and a basic tax credit of $9,189 (increased strictly due to inflation).
The story here is that personal income taxes are a heck of a lot lower than they were 3 and 8 years ago. Math-wise, you’re better off paying taxes in British Columbia than anywhere else in the country unless if you make more than about $100,000 (when you should move to Alberta).
Corporate Income Taxes
In addition to getting rid of the corporate capital tax (essentially a tax on invested capital), the government has dramatically reduced corporate income taxes.
Some terminology: In BC, a “small business” for tax purposes is a business making less than $400,000 in income. This was $300,000 before 2005, and $200,000 before April 1, 2002. The increases generally have matched the Federal government (although now the Federal limit has been recently raised to $500,000 with Budget 2009).
The “large business” rate in 2000 was 16.5%. By the 2005 election, it was 13.5%, and shortly after the election it was 12%. Now the rate is 11% and is legislated to drop to 10.5% in 2010, and 10% in 2011. Alberta’s large business rate is 10% currently, BC’s rate will be tied for lowest and currently is second best in Canada.
The “small business” rate in 1999 was 8.5%, and the NDP government legislated a gradual drop in the rate – 5.5% from July 1999 to June 2000, 4.75% from July 2000 to December 2000, and 4.5% from January 1, 2001 and onward. The BC Liberal government did not change the small business rate until very recently (July 1, 2008 and to 3.5%) in conjunction with the Carbon Tax, and the rate was further dropped to 2.5% as of December 1, 2008. Manitoba is the leader in the country with a 1% rate (Alberta is 3% if you are curious).
I pay close attention to the small business rate since my own small business pays corporate income taxes. Most people in BC that have incorporated will care about this rate.
Other taxes
The provincial sales tax (formally the Social Services Tax) was 7% when the BC Liberals took control; they increased it to 7.5% in the first term, but reduced it to 7% again.
The only other tax increase I could think of off the top of my head was the Motor Fuel tax, which was increased on April 1, 2005 – a separate larger fuel tax increase was also dedicated to Translink (and that tax increase only affected you if you live in the GVRD).
Of course the government created a new tax – the Carbon Tax, which everybody is no doubt versed with, and paid for some of the tax reductions mentioned previously between 2005 to 2008 – especially the small business tax rate and the lower personal income tax bracket.
Conclusion
The provincial government’s track record has been clear with personal and corporate income tax reductions. While a sizable portion could be attributed to the carbon tax, it is undeniable that the rates of provincial income tax today (personal and corporate) are less than four years ago.
Low income bracket was reduced by 3.34 % pts. Saving an earner at $30,000 about $862. This is equal to 2.8% of income.
Middle income bracket was reduced by 4.7% pts. Saving an earner at $60,000 about $2,635. This is equal to 4.3% of income.
High income bracket was reduced by 6.1% pts. Saving an earner at $90,000 about $5,343. This is equal to 5.9% of income.
It seems that Campbell has been moving the burden to lower incomes. Giving high income earners more double the reduction of those at the low end. Add in sales tax that hits low incomes harder and the carbon tax that hits low incomes harder. It is quite easy to see, if you earn little the Liberals will punish you.
Quimby, the lower income bracket people pay less tax to begin with. Any tax rate reduction will disproportionally affect the higher income people.
Even when you lower the lowest tax rate, somebody making $20,000 will receive less of a tax break than somebody making $30,000.
BC gives a $100 cheque to those that make less than $30k a year for carbon taxes, and has a whole host of other income-tested benefits for low income earners. There is absolutely no way to complain about this from any perspective.
Sure there is, they could have reduced all the brackets by same amount. Instead, they reduced the wealthiest taxes by much more as percentage of wages and taxes. There should be no or very little disproportionate effects, if you make it a policy imperative. The difference,in percentage of income returned, between top to bottom should not be over 100%. That is unless you want it to be that way.
In fact, it is economically stupid because those with lower income spend a higher proportion of their disposable income then higher incomes. Giving those with less income more money will have a much greater stimulative effect on the economy then giving to those with more money. To this end, raising the minimum wage to $10/hr will inject $100,000/hr into the provincial economy and that doesn’t even include the effects of velocity and multipliers.
This will be my last comment on this issue.
Quimby, your last comment is so wrong, I am glad you are not setting economic policy in this province.
People with more money will invest the surplus, this investment creates much more of a multiplier.
But I think your economic views are so out of line with mine that this will be my last comment for this topic since it is clear we are in two different worlds.
Are you a supply sider?
The economic theory that has proven to cause more pain then wealth, twice.
It used to Reaganomics, now it’s Bushinomics.
It’s failed twice, and adherents keep trying to prop it up. If the general public falls for it again, then they are a very gullible bunch. Drip down economics crashes harder(TWICE) then Soviet communism, and at least that didn’t bring the rest of the world with it.
Not to mention at least 60% of our economy is consumer spending, not investment. Pulling on that string will have a much greater impact then the investment string. One must also take into account the level of errant investment that has disappeared in the last 6-12 month, money that is having no/negative effect on the economy. I would hope that the myth that all investment is good, with its pal supply-side economics, would disappear. Because, it is false.
Interesting. Maybe you can tell that about the last decrease, which was to the lower rate brackets.
Also, perhaps we should look at total tax paid.
$30,000 income, $1053.04 tax paid.
$60,000 income, $3192.45 tax paid.
$90,000 income, $11,879.22 tax paid.
I’m sorry, but the $90,000 income tax earner is only paying more than 11 times the tax of the $30,000 earner. I dread to guess how you think this is fair, especially when compared to Ontario’s incipent move to flatter rates.
If you follow your thoughts to completion, clearly the only acceptable taxes are poll taxes or taxes on labor, which could be construed as slavery on the poor.
Oh, and I know I’ve made some mistakes with those calculations, first to spot them gets a prize.
In regards to BC tax rates compared to other provinces, I just moved to Manitoba from BC. I am a middle income earner. My provincial taxes shot up by about one thousand dollars. This is approximately equal to the cost of free health care that I get here, that I paid in BC as MSF fees.
It works out pretty even, but I will never have to deal with Accenture again thank goodness!