Wednesday, February 25, 2009

Bracket Creep - Still Going Strong in Manitoba

No matter which way you cut it, bracket creep is a pretty unfair form of taxation.

For those unfamiliar with the "secret tax", it occurs when governments don't index tax brackets for inflation. As a result, without changing tax rates, governments can claw back even more dollars from taxpayers.

Consider that in 1999, the basic personal exemption (the amount a taxpayer can earn before paying income tax) in Manitoba was $6,794. After several arbitrary increases, the basic personal exemption is now $8,134. While it appears like a generous increase, it has actually fallen short of keeping up with inflation.

Had the basic personal exemption increased at the rate of inflation, Manitobans would be able to earn approximately $8,387 - $253 more, income tax free.

Further, had the lower tax bracket increased at the rate of inflation, it would be $36,530, not the current level of $31,000. Finally, the upper bracket's rate of $67,000 would be $73,060.

Bracket Creep Table

To be fair to the Doer government, the bracket creep didn't start under their watch. However, unlike most other provinces, the Doer government has yet to address this unfair aspect in the tax system.

According to CTF calculations (which are supported in part by a government briefing note obtained by the CTF), inaction on this issue since 1999 now costs taxpayers over $66 million each year.

Hopefully 2009 will be the year that Manitoba joins the rest of Canada by protecting taxpayers' incomes from inflation.

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