The Myth of Steadily Rising Taxes

You have to admire the Fraser Institute for its knack in generating buzz around its research reports. Case in point is a recent report titled The Canadian Consumer Tax Index, 2010, which found that the total tax bill of the average Canadian family increased by 1,624 percent since 1961. The report received wide spread coverage in the press (this column in The Ottawa Citizen, for instance) accompanied by suitably provocative headlines. If you go by the press reports, you would have missed a rather pertinent point: incomes have increased substantially over the same time period. To be fair, the Fraser Institute report does make this point but this nugget was conveniently omitted in many media reports.

The interaction of a number of factors produced the dramatic increase in the average family’s tax burden from 1961 to 2009. Among those factors are, first, there was a sizable increase in incomes over the period (1,284 per cent since 1961), and even with no changes in tax rates, the family’s tax bill would have increased substantially: growth in family income alone would have produced and increased in the tax bill from $1,675 in 1961 to $23,174 in 2009.

But for all its brilliance in garnering publicity, the Fraser Institute should receive a failing grade when it comes to interpreting graphs. The Tax report boldly asserts that its “results show that the average Canadian family’s tax burden has been rising steadily for the better part of 48 years”. Except that even if you accept the Institute’s numbers as correct (quite a stretch considering that statistics hasn’t been one of the Institute’s strengths in the past — See post The Fraser Institute and Average Canadian Family), their own data does not support this conclusion. The following graph, which shows taxes as a percentage of cash income, is excerpted from the Institute’s report and you be the judge of whether tax burdens are rising steadily. It seems to me that about the only reasonable conclusion you can draw is that the tax burden grew steadily (for whatever reason) between 1961 and 1974.