Friday, January 18, 2008

Raise basic exemption, not minimum wage

In our pre-budget submission this year, the CTF advised the province of Saskatchewan to raise the basic exemption on income taxes up to $15,000 and to implement a single tax rate of 11 percent. The article "Tax Cut Beats Hike to Minimum Wage" by Peter Holle demonstrates that this hike in the basic personal exemption is as beneficial to a minimum wage worker as earning an extra dollar, without hindering the ability of employers to offer such jobs.

A recent study for the Frontier Centre, Which Best Helps the Poor: Minimum Wages, Tax Credits or Tax Exemptions? by Winnipeg social activist David Pankratz looked at the powerful impact of reducing taxes on the poor.

Looking at Manitoba, it found that simply raising the provincial and federal tax-free threshold by $6,000 (to match the bottom threshold at which Alberta starts to tax) effectively increases the take-home pay of a minimum wage earner by the equivalent of a minimum-wage increase to between $8 to $9.18 per hour.

Raising the tax-free threshold targets those most in need -- that is people who work long hours for low wages. It does not help teenagers who work a few hours a week, because their income is already below the current annual tax exemption threshold.

But to leave minimum rates at current levels encourages job creation. And, unlike the federal tax subsidy program, it doesn't require more paperwork to allocate benefits. It is simple to implement, and that is key.

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