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Average Canadian family has more disposable income than Americans, but the gap is closing
By: Ish Theilheimer
Who gets the most after taxes, Americans or Canadians? A new study shows that contrary to rhetoric of the tax-cut lobby, average Canadians take home more than or about the same as average Americans. Canadian families may be losing ground, though.
New data from the Organization for Economic Cooperation and Development (OECD) confirms this. On February 8, OECD published Taxing Wages in OECD countires 1998/99 [www.oecd.org/news_and_events/publish/pb00-02a.htm#top]
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"Average" Canadian wage: $30,200. Average take-home pay: $24,764. "Average" American wage: $29,076. Average take-home pay: $24,424. Difference: $340. |
As it does every year, this report looked at wages and disposable income for the "single individual at the income level of the average production worker."
Its report is pretty clear. The "average production worker" in Canada earns $30,200 in "dollars with equal purchasing power," and gets to keep 82 percent of that after taxes and social security contributions. So the Canadian average production worker takes home $24,764 hypothetical loonies.
The average American production workers earns $29,076 and gets to keep 84 percent - 2 percent more take-home, but a lower average wage. He or she takes home $24,424, or $340 less. For all practical purposes, there is no difference at that level.
Canadian high-income earners do pay more taxes than their US counterparts. This was shown by a 1998 Statistics Canada study that compared US and Canadian disposable income in 1975, 1985, and 1995. For middle-income earners, it showed the differences are slight.
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Studies consistently show that after-tax income for average Canadian worker is higher, but Canadian social program cuts mean Americans are closing the gap |
"With respect to family incomes, the most striking result is that a substantial fraction of Canadian families was absolutely better off in 1995 then their US counterparts at similar points in the income spectrum." The exact difference varies greatly depending on which method is used to estimate the purchasing power of US and Canadian currency.
"Indeed, roughly half of Canadian families had disposable incomes in 1995 that gave them higher purchasing power than otherwise comparable U.S. families," concluded the study comparing the disposable income of Canadian and U.S. families.
Scott W. Donaldson is a Canadian and a Straight Goods correspondent. Last week he wrote to us from Houston Texas saying when he went to work in the US, he was "surprised how much all the hidden costs of living in the 'Great US of A' added up."
He say that when he finished adding up "the cost of contracting your own garbage removal, your own sewer service company, fees for water, electricity, gas and mail delivery," it offset any gain in wages he got by moving south. "Wow, I had no idea how little of my paycheque I'd get to see after bills got paid."
American upper-income earners pay less taxes than their Canadian counterparts. But for the middle class, the tax saving is offset by health care, education, and other social benefits. Unfortunately for Canadians, these are the very benefits being cut federally and provincially. Tax cuts and deficit reduction take money and benefits directly from consumers.
Economist Mike McCracken of Informetrica in Ottawa is concerned about the trends. "Whatever it was 20 years ago, we're getting less," says McCracken. He believes that relative to Americans, average Canadian families have less disposable income than 20 years ago before cuts to social programs began in earnest in Canada.
He cites the rising costs of pharmaceuticals and university tuition as examples of rising living costs cutting into disposable income in Canada. Americans traditionally receive less from their government in social benefits, but they have suffered fewer cuts in the past 20 years than Canadians.
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