Chapter 6: Determination of National Income
"Taxes claiming nearly half of your income, survey says"
680News - Monday, April 16, 2007
By: Allison Barnes
Government policy and taxes are draining the average Canadian family income more than food, clothing and housing combined. According to the Fraser Institute, it found that Canadians spend nearly 45% of what you earn on taxes. So if an average family makes $63,000 then they pay over $28,000 in taxes. Personal income taxes account for only 32% of the total taxes paid by the average Canadian family in 2006. Compared to before Canadians are now paying more in direct taxations, such as income taxes, sales taxes, employment insurance and Canada Pension Plan contributions. There are also other so-called hidden taxes, such as import duties, gas and taxes, and excise taxes on tobacco and alcohol.
With people realizing how much they pay in taxes, the tendency to save up money instead of spending it becomes even greater. When this happens money is taken out of the flow of money, which means not enough money is sent to the business sector. This may result in cut backs in production and labour. The cut back themselves would mean that there are less money going to back to the households in the form of wages causing an endless cycle. Government policy and taxes affect business spending greatly. For example excise taxes on products will defiantly affect consumer demand. Not only can changes in taxes affect consumers, but also potential investor both local and foreign. In order to find how the changes in taxes affect GDP, the tax multiplier can be used. Using the formula you can figure out the affects on GDP from changes in taxes.
Change in GDP= -[changes in taxes * (MPC/1-MPC)]
posted by J.Woo at 7:14 AM
3 Comments:
When people save money instead of spending it leads to a decrease in aggregate demand shifting the curve to the left. I think I contribute to this because I find that due to the direct taxes we pay in British Columbia for consumer goods, I save my money instead. I end up using this saved money to go to Portland instead wheres the land is TAX-FREE!!! Ultimately, I am taking money out of the Canadian economy and contributing to the American economy which is probably unfavourable hence why those custom meanies always try to tax me more than they should when I cross the border to go home. I think that the taxes on consumer goods should be reduced more than that 1% because we're already paying enough taxes. Also, the taxes on the goods is just driving away consumers to the United States anyways.
I agree about the fact that when taxes are lowered, people tend to spend more than usual. Also, many people who are 15 or above tend to say they’re younger to avoid paying the extra tax. I understand that the government needs money for funds towards education, healthcare, and whatnot but couldn’t they decrease the tax rate by just a bit? I think it’s really affecting the level of spending, which would affect the economy in the long-run. People like to go to other places where it’s tax-free or the tax rate is lower. This is forcing consumers to spend their money elsewhere. Even though taxes are a must, they put a dent in people’s desire to spend.
You bring up a good point in saying people avoid paying taxes by going to other tax-free places to buy merchandise. I have first hand experience in avoiding taxes by buying my Nintendo Wii in Portland. Similarly to Sheila, although it is cheaper for me to buy the game system in Portland, money that is supposed to be put back in the Canadian flow of money is now taken out and put in the American money system. If more and more people spend elsewhere like Sheila and I, the Canadian economy will surely suffer and the government might increase taxes to attain more money - a vicious cycle. Also, now knowing that such a large amount of our income is taxed, it might discourage many to work to their potential. Since working so hard will get them to be taxed more, some might just not work as hard and also hurt the economy in this way. Surely, dealing with taxes is a difficult task and we will all have to live our lives knowing that we will be taxed and adjust to that.
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