And as for the poor, they ought to pull up their socks, work harder rather than look for handouts. Some herald this as a victory for individual responsibility and freedom.
But in the end this view undermines both by pretending away the role of social circumstances, uneven power and bad luck in shaping life chances and choices, and by discounting the role that our public services play in helping overcome disadvantage and tough times.
At its worst this atomizing vision feeds selfishness and narcissism and justifies extreme inequality — and inequality most assuredly grew. In fact, economic inequality, particularly the gap between the very top and the rest, is growing dangerously fast in Canada.
A disproportionate amount of economic growth goes to the already rich while, at the same time, increasing numbers of Canadians are unemployed, underemployed or employed in precarious jobs that offer no benefits and certainly no security. In The Spirit Level , Richard Wilkinson and Kate Pickett, exhaustively document the costs: more unequal societies have more crime and violence, family disruption, sickness and conflict. Extreme inequality is corrosive, undermining our ability to find common ground and common purpose.
It threatens democracy and social trust. And their voice carries great weight. And extreme inequality eventually undermines equality of opportunity as the wealthiest pass on their privilege and the poor their disadvantage. Taxes are not just about revenue; they are also about the fair distribution of economic benefits and about how much inequality we are willing to tolerate. The Canadians I have talked to over the past year are almost always surprised to learn how deeply taxes have been cut.
A small tax cut is far less helpful to a young family than publicly funded childcare. But beyond this, Canadians are not wrong to wonder who got most of the tax cuts. While taxes over the last decades have come down for everybody, they have come down most for the most wealthy.
Income taxes are the key component of a progressive tax system. At the federal level and in most provinces, taxes on income are pretty progressive up to about the middle but anything but progressive at the top.
As our income rises, its marginal utility declines. Simply, if we were to tax all income at the same rate, as flat tax advocates would have it, we would be asking far greater sacrifice from those living pay cheque to pay cheque than those making millions—and we would also be setting tight limits on how much revenue we could hope to collect. These are smart in that they do not negatively affect productivity, cannot be off-shored to tax havens, and provide a large base for needed revenue.
So long as the consequences for low-income Canadians are offset through the tax credit and to the extent that the revenues are used for progressive purposes, such taxes will be an important part of the mix. In the future, carbon taxes and financial transaction taxes may provide more socially beneficial approaches. And tax policy has to take into account the incentive effects of changes in tax rates as well as the political receptivity to any change.
But even the IMF has pointed out that Canada does indeed have room for higher income taxes particularly on the rich. And in the end, we all benefit if we restore greater progressivity to our tax system. Growing evidence demonstrates that fair is smart, that progressive taxes, where those who benefit most pay the greatest share, make good economic sense. For a snapshot of the economic consequences of endless tax cuts and reduced progressivity we need only look at the current controversies surrounding tax reform in Kansas and Ohio.
Progressive taxes ensure that the benefits of the economy are at least somewhat more evenly distributed which, it turns out, is essential for a healthy economy. This happens in two ways. For example, a Cornell Survey Research Institute poll showed that 57 percent of respondents said they had never participated in a government social program. However, 94 percent of these same respondents reported being the beneficiary of a program provided by the state, with the average participant benefiting from four government programs.
Michael Lewis highlights one such example in his recent book, The Fifth Risk. Specifically, when the U. Second, many of the U. For example, much of what the government does is actually about preventing bad things from happening, which is something no one ever sees. For example, consider food safety, fighting terrorism, investing in systems to detect natural disasters, and keeping planes from colliding—these are things you only notice when things go terribly wrong.
Successful government efforts in these domains are essentially invisible. Disaster prevention does not just happen by itself, and it is not cheap. But it is hard for citizens to see and appreciate this work, so they go on complaining about the government even when it may have just saved their lives.
So if you are like many other Americans, your aversion to taxes may stem in part from a lack of appreciation for what the government actually does for you. Surely, the U. If we knew more, we'd still have disagreements, but at least our discussions would be more rational and produce more coherent policies.
Tax law can be complex, but if high school students can get a handle on the basics, so can the adults who choose the politicians who implement it. Is a flat or a progressive tax fairer? It depends on your sense of justice — but before you can even answer that question, you need to know how each mechanism works. So students learn that the relative tax burden on individuals depends on which tax base is used. Sales taxes place a higher burden on lower-income people because they generally spend a greater percentage of their income than higher income taxpayers do.
A flat income tax is easy to understand: You pay a certain percentage of your income, no matter how much you make. With a progressive income tax, escalating rates apply as income increases. Their marginal rate is 15 percent, but their effective, or average, tax rate is Real-world discussions often occur in a tax-ignorant universe.
Many people — including some politicians — incorrectly say that the IRS, not Congress, writes federal tax laws. They say that some taxation is needed to pay for the government but that it should be lower and "fairer. Often they state that we should lower the income tax rate to a number that is actually higher than the current top rate. Failure to File.
Failing to Pay Estimated Tax. Additional Triggers. The Bottom Line. Key Takeaways Every year, working Americans are required to file income tax returns with the IRS, reporting their total income from employment but also other activities such as investments. And every year millions of those taxpayers are found to under-report their income or taxes owed, leading to billions of dollars in back taxes, interest, and penalties.
Reasons could be simple mistakes, such as filing late or making errors in tax calculations, which can be avoided upon careful inspection and preparation. Other reasons are more nefarious. Failure to report taxable income in extreme and deliberate cases can result in jail time in addition to monetary penalties. Article Sources. Investopedia requires writers to use primary sources to support their work.
These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy. Compare Accounts. The offers that appear in this table are from partnerships from which Investopedia receives compensation.
This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace. Related Articles. You Could Owe Tax Penalties. Partner Links. Tax Day in the U. The deadline is April 15 in , as in most years. Estimated tax is a quarterly payment that is required of self-employed people and business owners who do not have taxes automatically withheld.
Form U. Individual Tax Return Form is the standard U.
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