# Neil Reynolds’ Fuzzy Tax Math

April 22, 2012

If you need help with your tax return, don’t ask Neil Reynolds. His latest attack on the New Democrat proposal to collect modestly more tax from Ontario’s super-rich stated that “the province’s highest marginal rate on personal income would rise, federal and provincial rates combined, from 46.4 per cent to 49.4 per cent – meaning that this rate would theoretically net \$247,000 in revenue.”

The New Democrat proposal would actually produce a top combined marginal rate of 49.5%. (Reynolds got this figure right in his prior column on the subject.)

As far as I can tell, Reynolds arrived at \$247,000 by multiplying \$500,000 and 49.4%, treating a top marginal rate as though it were a flat or average rate. In fact, the New Democrat proposal would apply only to income in excess of \$500,000. Taxes on the first \$500,000 would not change.

One has to wonder whether similarly fuzzy math underlay Reynolds’ previous claim: “People who make more than \$500,000 already work full-time for the state (federal, provincial and municipal) for perhaps eight months a year.”

An Ontarian with \$500,000 of taxable income and only the basic personal credits in 2011 would pay \$133,325 of federal income tax ((\$500,000-\$128,800)29%+\$27,256-\$10,52715%), \$52,273 of basic provincial income tax ((\$500,000-\$75,550)11.16%+\$5,364-\$9,1045.05%), \$26,578 of Ontario surtax ((\$52,273-\$4,078)20%+(\$52,273-\$5,219)36%) and \$900 of Ontario health premium.

So, the maximum income tax payment on \$500,000 is \$213,076. Of course, Reynolds’ claim of eight months of servitude also includes property tax and HST.

If our imaginary rich guy owned a \$5-million mansion in Toronto, he would pay property tax of \$39,646 (\$5,000,0000.7929218%). If he somehow managed to spend all of his after-tax income on goods and services subject to HST, he would pay \$28,448 of HST (\$500,000-\$213,076-\$39,646 =\$247,278=\$218,8301.13; \$247,278-\$218,830=\$28,448).

These extreme assumptions would bring his total tax payments to \$281,170 (\$213,076+\$39,646+\$28,448). That’s 56% of taxable income, which corresponds to below seven of twelve months.

The same calculations for an Ontarian with a million dollars of taxable income and a \$10-million mansion produce a total tax bill of \$579,129 (\$445,124+\$79,292+\$54,713). That’s 58% of taxable income, which is still below seven months.

The New Democrat proposal would not affect the first rich guy. But it would increase the even richer guy’s taxes to \$592,935 (\$460,724+\$79,292 +\$52,918), 59% of taxable income or just over seven months.

Erin Weir is an economist with the United Steelworkers union and a CCPA research associate.

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