I will leave the philosophical discussions out of this about whether we are being paid sufficiently or whether a dollar is worth what it should be worth, the more interesting discussion is, what is $1 earned actually able to buy after it gets into my grubby hands?
First you must pay your income tax on that $1 earned (let’s leave out investment income, maybe save that for a different day), but you also need to pay your EI and CPP premiums on that poor earned $1 as well.
|The Diminishing Dollar Earned|
|Take Home Pay||$0.62|
|Actual Dollar Value||$0.54|
So my $1 earned is really only 54 cents? Yes, I have made some assumptions
- Provincial income tax is about 8.65% in Ontario for someone making between $50K and $90K
- Federal income tax rate is about 24% for the same bracket
- The HST in Ontario is 13% (which you will have to pay on most things you buy these days)
- All deductions, and tax lowering capabilities are ignored to make for a much more dramatic number
So here we have 54 cents for every dollar earned. If I want to go out and buy a nice Big Screen TV for Christmas (because I deserve it), let’s assume this monster is going to cost $1100.00, this means I have to earn
$1100/0.54 or $2037 to buy that TV
A better number for this simulation might be 65 cents, but at the end of it, many folks get tripped up when they think about their Income as a Gross Income number, when in fact they really should be thinking about what their Net Income is. What is Net Income?
Net Income = Gross Income – Provincial Tax – Fed Tax – CPP – EI – Insurance Costs – Benefits costs – Other income expenses
The last time someone told you how much they made as income, did they tell you their Net or Gross Income? Gross of course, no one wants to think about how much they really earn.