The high cost of getting ahead

Effective rates play a key role in family decisions by reducing the gains from working for individuals or by adding to their income.2 Governments thus need to be cautious not to discourage work among certain segments of the population, such as mothers and secondary earners in a family, because of the way taxes and benefits interact and lead to extraordinarily high effective tax rates. [...] However, the system recognizes families through tax credits, deductions and benefits whose amounts are affected by the income of a spouse (married or common-law) and the presence and age of children. [...] A household’s METR, at any income level, comprises the sum of the statutory income tax rate – federal and provincial – and payroll taxes, plus the effect of tax-back or phase-out rates for each benefit program to which the household is entitled. [...] A household’s PTR is the ratio of the total amount of taxes, fiscal contributions, payroll deductions and loss of fiscal benefits on the entire earnings from work. [...] Three main factors determine Jennifer’s METR and how much the family will lose in taxes and benefits: the family’s income and how much more Jennifer is considering earning, her province of residence and how the family income is split between her and her husband.