Tax cuts won’t cut it: Low wage workers need a raise

Piggy bank on green backdrop
A month ago, PC Leader Doug Ford floated a trial balloon: he would freeze Ontario’s minimum wage at $14 but take everyone making less than $30,000 a year off of the income tax rolls.

At that time, I checked the math and concluded that a $15 minimum wage would leave more dollars in those workers’ pockets.

This week’s announcement by Ford contains more detail, so it’s only fair to update my analysis.

If elected, Ford would provide a tax credit for minimum wage earners to reduce their income taxes to zero. The press release that accompanied this announcement provides an estimate of taxes payable for someone working full-time, 50 weeks a year, and making $28,000.

The PC estimate is that a full-time minimum wage earner who makes $28,000 a year would save $817 in personal income taxes under this promise. That number only takes into account the basic personal exemption.

To be clear, this policy would freeze the minimum wage at $14 instead of raising it to $15 an hour on January 1, 2019—which is the current government’s schedule. A $15 minimum wage would increase a full-time minimum wage worker’s pre-tax earnings by $2,000.

Under the current rules, the maximum Ontario income tax that you would pay on that $2,000 raise is an additional $101.

So, which option puts more money back in the pocket of the minimum wage worker?

Taking both the tax and transfer system into account, you would be $712.13* ahead with an increase in the minimum wage rather than with the tax cut.

Canada Revenue Agency (CRA) data shows that the average Ontario taxes paid for people making between $25,000 and $29,999 is about $710. That is because other deductions and credits reduce the payable tax. If a minimum wage worker has other deductions, like child care expenses, it would reduce the benefit of this promise. If they were eligible for a credit for the cost of tuition fees, medical costs, or other such credits, that would also reduce what they owe in taxes.

There is another fundamental problem with this policy. As the system presently stands it is impossible to provide a tax credit based on hourly earnings. There is no way for the CRA to tell the difference between a minimum wage worker working full-time for a month making $2,240 and a high-priced $500/hour lawyer who worked four hours last month. Personal income taxes are based on annual earnings, not hourly earnings.

Bottom line: minimum wage earners would be about $710 better off with a $15 minimum wage increase, as opposed to a tax cut. And for some minimum wage earners, the benefit of a $15 an hour minimum wage would be even higher.


*Update: This blog post has been updated with Lindsay Tedd’s estimates of the impact of both the tax and transfer system.

Sheila Block is a senior economist with the Canadian Centre for Policy Alternatives’ Ontario office. Follow Sheila on Twitter @Sheila_M_Block.

9 comments

  1. Although your math might be correct, I think your assumptions may not be. You are comparing the post-tax salary for a full-time minimum wage earner, but that might not always be the case. It seems like Doug Ford is trying to protect jobs. Already with the increase to $14/hour, there have been cases of minimum wage employees losing paid breaks, benefits, reduction in hours and even losing their jobs. Even a reduction of a single hour per week amounts to around $750 per year, did you take that into consideration with your calculations?

  2. This wage freeze also means that the annual cost of living adjustments in October are also being eliminated, so each year it is frozen, wages will once again remain stagnant while the cost of everything else goes up. Not just the minimum wage, but all other wages that use it as a benchmark.

    The other drawback of freezing the minimum wage indefinitely is that sooner or later we will once again have to make a big jump that entrepreneurs will struggle to handle. How large an increase they will have to adjust to depends on how long Ford freezes it for. Hopefully it won’t last the nearly 9 years our last PC government froze it for, or Ontario businesses will be in for a major budget hike.

    Raising it incrementally, after this last $1 jump to get it closer to the benchmark set by the consultation committee in 2014, will mean that businesses will no longer have to deal with sporadic, large hikes, they can incorporate the smaller increases into their annual cost of inflation adjustments.

    Ford’s plan will, in the long run, not just hurt all of Ontario’s working class, but small and large businesses as well.

  3. I noticed that my previous comment was not approved. It did not violate your comment policy, but simply pointed out an important fact that was left out of the article. But I guess you just want to push your own views on others and suppress any other view which goes against yours. I will never trust your site or any of your contributors again.

    1. Hi Andy,
      Your previous comment is approved. The approval just isn’t immediate as all comments have to be reviewed and this process isn’t instantaneous.
      We apologize for the confusion.

      1. Sorry, I see that now. After posting it showed as awaiting approval for a while and then disappeared which made me think it was not approved, very confusing. I take back my previous comment.

  4. “The trade off for minimum wage workers is between taking home at least $1,899 (post tax) more in wages (at $15/hour), or staying at $14/hour and getting a refund of $817.” That seems to ignore the federal tax which would be $300 (15%) on the extra 2000 of earnings. The difference then would be between taking home $1,599 vs getting a refund of $817. That would be a net loss of $782.

  5. In response to Andy:

    1. Sadly and shamefully, there are some businesses in our society rely on poverty minimum wage/low wages to survive or thrive at the expenses of their workers and the health of the communities in which they are operating. Not only shameful these businesses are, but also parasitic they are ( one example, I heard that in the US the workers in McDonald’s need public tax dollar subsidies to survive because the wages are too low. In Canada is similar situation to a certain degrees). Those businesses are not a gain to our community but a drain from our community. I have long wished that we can drive out all those “low road taking” shoddy businesses, either by compulsory higher labour standards or consumer actions. Then the market shares, are being occupied currently by them, will be taken by good business that can operate on decent, fair labour standards. Those decent businesses would hire new workers and provide them with decent work and fair, non-poverty wages, which will create many more customers that have strong purchase power to support businesses and economy, which actually will raise the living standards for all in a virtue cycle.

    2. When business facing challenges, there are two different strategies: one is to shift cost to workers in order to keep their profits; another is to adjust business model and adapt the new environment but not shift costs to workers while keeping their profits. The former won’t last and will go down soon, the later can sustain and go a long way because they retain and value their best asset — workers who would work their ass off to contribute to the business that would go strong. I suggest you to visit a website betterwayalliance.ca to see a group of good businesses and see how they operate.

    3. When $14 minimum wage was implemented, some businesses passed the challenge/impacts to their workers. Those businesses are often operating on questionable, unsustainable business model. Those businesses are the ones deserve to blame, not the $14 minimum wage or higher labour standards. Is $14 ($15) a too high wage in Ontario nowadays? Don’t you think that workers deserve equal pay for equal work, paid sick leave and other better labour standards? In fact, our communities have allowed the low wages and poor working condition exist for way too long, which have created so much misery in our communities and dragged the whole economy down. It’s time to raise the labour standards to force the bad employers either becoming good ones or facing being eliminated for failing to progress. What left, are good employers that would be a nice thing for everyone.

  6. As a small business owner I employ part time workers, who made slightly above minimum wage. I paid them as much as I could afford. In essence my two employees made more then I did and I am there full time. I know it’s not a viable business, but it did make money, enough to keep going. Unfortunately the increase means that I may have to close as I can’t afford to subsidize this venture. This business brings people into our dowtown, it brings a unique opportunity to our area and we have many loyal customers. That and the increase in rent is forcing me to make some decisions in the next year. There are many businesses like mine across the province who are just hanging on, but they will close. Empty store fronts, vacant commercial units do not pay taxes or create jobs.

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