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)]