Not Taxing Low Income People Smarter than Raising Minimum Wage

Blog, Peter Holle, Poverty, Uncategorized, Workplace

A few years ago, Frontier released a study which made the case that removing people at the bottom of the income ladder from the tax code was a superior means of fighting poverty.  A colleague referred me to a recently released report by the Saskatchewan Minimum Wage Review Board that validates that research.  

 Saskatchewan’s minimum wage is $9.25 an hour compared to $10 an hour in Manitoba.  However, because Saskatchewan starts taxing at a higher income level than Manitoba, you are better off there in terms of net, “in the pocket” pay.

Here is the footnote which confirms that raising the minimum wage is no magic answer for helping low income earners:

In 2008, the Saskatchewan Government increased the Basic Personal Exemption (BPE), Spousal Exemption and Child Tax Credit and indexed future exemption levels. Together, these changes have eliminated 92,000 taxpayers from the tax rolls. A single minimum wage earner working full-time in Saskatchewan pays $628 in provincial income taxes or 11 per cent on $5,705—the difference between $19,240 and the current BPE of $13,535. Federal income taxes would be responsible for $1,329 or 15 per cent on $8,858—the federal basic personally exemption is only at $10,382. These figures do not consider other exemptions, like the Child Tax Credit, that would further reduce income taxes.

In Manitoba, the income tax for an individual minimum wage earner with a gross annual income of $19,760 (2080 hours per year at $9.50) is $2473.71, $654.54 more than in Saskatchewan. When compared to Saskatchewan’s minimum wage earners, though Manitoba’s minimum wage is higher and earners have a larger annual gross income, their net income is actually lower.

The lesson here is that reducing taxes paid by the poor can have a more significant impact on their take-home pay than increasing minimum wage.  Too bad the Manitoba NDP remains fixated by the minimum wage mantra.