- Smart Investing
Do Canadians Really Pay More Taxes than Americans?
Growing up, we’ve all heard that in Canada we pay more taxes than Americans but we get more services in return, like Universal Health Care better social programs (like Unemployment Insurance) and better support in our older years.
But is all that true?
Let’s first look at the data on taxation. The Organization for Economic Cooperation and Development (OECD) analyzed the tax burdens of 35 countries, including the United States and Canada. According to its data, when looking at total tax revenue per capita (2014), Canadians did actually pay a little more in taxes than Americans. But, as you can see, the difference is actually pretty small. The OECD divides that tax burden by GDP so they can compare countries with high GDP/capita (US) against countries with lower GDP/capita (Mexico).
Note that the tax burden included sales taxes, property taxes and compulsory social security contributions.
You’ll probably not be surprised to learn that the highest tax rates were in Europe, in most cases more than 10% higher in terms of % of GDP.
Actually, if we take out GDP and just compare the US to Canada based on taxes per capita, you’ll see that both countries take about $15,000 USD per person, with the US actually leading Canada in 2015 (although with the Trump tax cuts, that situation has likely changed).
The point of all this is that we often complain about the high tax rate in Canada but it is actually not that much different than in the US. In fact, if you look at a high tax state in the US (California or NY), individual taxes are actually a lot higher.
And don’t forget about the universal health care system, generous parental leave benefits, strong social welfare programs and relatively inexpensive tuition for higher education. Even if we have to pay a little more in taxes, it seems to be worth it.