You often hear, tell me how much you earn and I’ll tell you what tax bracket you’re in.
Talk about social status triggers considerable reaction, particularly in the context of taxes and public finances. Information about social classes and their contribution to public funding abounds. The general perception is that it’s better to have the so-called “rich” pay more taxes to fill government coffers and cover public spending than to ask more of the middle class.
Since the middle class often feels it’s the big loser, governments tend to present themselves as its strongest defender, something current Prime Minister Trudeau focusses on in his political discourse defending the interest of the middle class. But what exactly is the middle class?
The authors of a recent study by the Chaire en fiscalité et en finances publiques at the Université de Sherbrooke, under the leadership of Professor Luc Godbout, sought to determine whether the perception of the middle class was accurate. It comes as no surprise, the study revealed that there is a significant gap between the subjective perception of the middle class and the objective reality based on reported annual income and household structures (single person, couple, with or without children).
The middle class
A single individual without children with income between $28,500 and $57,00 is in the middle class. A couple without children is considered to be in the middle class if their income is between $40,500 and $80,500 and, for a couple with two children, the middle class range is between $57,000 and $114,000.
The study reveals that while 56% of individuals believe they are in the middle class, in reality, only 38% of them actually are. More surprising, only 6% of individuals feel they are rich but the percentage is actually 27%. In other words, only one higher income individual in five knows that he or she earns more than the middle class. This perception of the middle class is a bonus for government. Any policy announcement targeting the middle class is viewed positively by some 60% of the population, but the policy actually only applies to 40%.
The study also revealed that people have an incorrect view of their tax contribution. Their perception is that the lower and middle classes, representing 73% of the population, pay 72% of taxes with 28% being paid by richer taxpayers. In reality, more prosperous individuals account for 27% of taxpayers and pay 70% of the taxes, with the lower and middle classes contributing 30%.
Taxpayer, beware of perceptions. The numbers speak for themselves!