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-$10,527*15%), $52,273 of basic provincial income tax (($500,000-$75,550)*11.16%+$5,364-$9,104*5.05%), $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 ($5,000,000*0.7929218%). 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=$218,830*1.13; $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.