chapter 8 income distributionthe canadian welfare society canada has a mixed economy therefore it...

Chapter 8 – Income

DistributionPart II

In a nutshell so far..

1. Factors that determine wages

Risk taking

Ability

Wealth

2. In Canada, poverty is usually defined in relation to the average Canadian income and expenditures on necessities

3. The poverty line, which depends on household type, is the income level below which a household is classified as poor

4. Poverty is mot prevalent among unattached (single) individuals (esp. women), single-parent families (esp those headed by women) and those under 25 and over 64 years old

5. Other possible measures based on absolute definition of poverty have been proposed by Canadian gov’t but have yet to be officially adopted

The Canadian Welfare Society

Canada has a mixed economy therefore it can be described as a welfare

society

Government plays a major role in attempting to ensure the well-being of its

citizens

How does the government address the specific goal of income equity?

Transfer payments

Income taxes

Transfer Payments

1. Transfer Payments

a) Universality vs Means Testing

b) Impact on Income Distribution

2. Taxes and Income Equity

3. Taxes and Income

Universality vs Means Testing

Principle of Universality

Benefits apply to all individuals, no matter what their incomes

Advantage: treating everyone in the same way; transfer payments are

the same to every individual

Drawback/Disadvantage: In order to provide significant help to those

who need it the most, a large sum of money has to be paid to ALL

recipients

Means Testing

Transfer payments vary according to recipient’s income

Advantage: benefit can be directed to those who need them most

Poor households receive highest payments

Disadvantage: Gov’t may use means testing to limit spending by

narrowing qualifications

Transfer Payments





3. Taxes and Income

Impact on Income Distribution

Government transfer payments to individual households are between 10-20%

of household’s income

Many of them go to unattached individuals vs families

The poorer % households get more than the richer 20% of households

Payments have some impact on equalizing the distribution of income, but it is

not perfect

Transfer Payments and Income Equity

Transfer payments are now usually based on the principle of means testing

rather than universality.

Transfer payments are greatest as a percent of income for the poorest fifth of

households, but the second-poorest fifth of households receives the largest

share of these payments.

Transfer Payments and Income Equity (b)

Lowest 20%Second 20%Third 20%Fourth 20%Highest 20%

Average of Total

Average TransferPaymentsReceived(2006)

$7 2009 7008 4007 5005 100

7 600

Transfer Paymentsas a Percent ofTotal Income

(2006)

51.9%30.616.49.73.3

11.6

Share Receivedof Total Transfer

Payments(2006)

19.9%25.722.219.813.3

Transfer Payments





3. Taxes and Income

Principles of Taxation

There are two main principles of taxation:

benefits received (e.g. gasoline taxes for roadwork)

ability to pay (e.g. personal income tax)

Benefits Received

Definition: The principle applied to taxation,

whereby taxes are geared to the benefits each

taxpayer gains from government activity

Government services are paid for in the same way

that products are bought and sold in the private

sector

For example, carbon tax on gasoline… is it

mandatory? What is it’s purpose?

If you drive more, you will gas up more. Therefore you

will be taxed more. Therefore when doing

maintenance on roads, you will be contributing more

to it.

Ability to Pay

Definition: the principle applied to taxation, whereby taxes vary in proportion

to a taxpayer’s financial resources

Difficult to measure this value

Should incidence factors play a role in determining in paying amount of taxes?

Do all individuals earning $40,000 have the same ability to pay taxes or should we

take into account of how many children they need to support as well?

Transfer Payments





3. Taxes and Income (Next Class)

Taxes and Income

1. Progressive Taxes

2. Regressive Taxes

3. Proportional Taxes

Progressive Taxes

Definition: a tax that increases as a proportion of income as income increases

This is what the Canadian System uses to calculate the tax owed from

taxpayers

In a nutshell: as you make more money, you pay more taxes

Sanpellegrino makes $30,000 in 2017. How much does she pay in BC taxes?

Logan makes $50,000 in 2017. How much does he pay in BC taxes?

Regressive Taxes

Definition: a tax that decreases as a proportion of income as income increases

It is the OPPOSITE of progressive taxes

In a nutshell: as you make more money, you pay less taxes

Ie: If I make $10,000 a year, I pay 10% in taxes. If I make $20,000 a year, I pay

5% in taxes

A regressive tax imposes a greater burden on the poor than on the rich

Regressive Taxes

Sales Tax

If sales tax is 7% for each person, a person with an income of

$10,000 is a greater proportion of the overall income VS a

person with an income of $100,000

Property Tax

Proportional Taxes

Definition: tax that remains constant as a proportion of income for all

incomes

In a nutshell: as you make more money, you pay the same taxes

Example: If I make $10,000, I pay 10% in taxes. If I make 1,000,000, I pay 10%

in taxes.

Application: Tithe of 10%

You Try!

Identify the following taxes as progressive, regressive or proportional and explain

your answers

a) A tax on inherited wealth

b) A 7% sales tax on all gods and services (with no accompanying tax credit)

c) A personal income tax with a constant marginal tax rate (and no deductions

from income)

d) A tax on residential housing

chapter 8 income distributionthe canadian welfare society canada has a mixed economy therefore it...

Documents