- I took the median U.S. household income. Which is $45,000. No interest, no capital gains - just wages.
- Family of four - two kids under age 16.
- No special deductions for either Canadian or American taxes - assumed they took the basic exemptions allowed to them.
- This hypothetical family lives in Michigan for U.S. tax purposes and Ontario for Canadian purposes.
- The U.S. wages will be coverted into Canadian dollars at $1CDN = $0.80 US.
Here are the results of this little experiment:
Gross wages: $50,000 USD
Federal taxes: $1,459
Michigan taxes: $1,437
Total taxes : $2,896
Effective tax rate: 5.8%
Gross Wages: $56,250
Federal taxes: $ 6,375
Ontario taxes: $2,069
Total taxes: $8,444
Effective tax rate: 15.01%
As you can tell, there is a huge difference in effective tax rates - if you doubled the wages in both cases, the differential would be even larger. And this is with the American family taking the standard deduction: if they had a typical house, they could itemize their deductions and write off property taxes, state taxes, mortgage interest, and charitable deductions to name a few and have larger tax savings. These options are not available to Canadians.
Of course this is a rudimentary comparison, only meant to give one the huge differences in taxes one would pay in either country. This goes a long way to explaining why Canadian incomes have stagnated over the past 20 years while U.S. incomes have shown real growth.