Low income people breathe more than high income people too: Budget 2015 and the TFSA
(I want to thank an observant constituent who alerted me to this)
Raising the TFSA contribution limit from $5,500 to $10,000 benefits wealthy people more. Budget 2015 uses a deceptive figure to hide that.
The Conservatives have been quoting again and again a line from Budget 2015:
“…about 60 per cent of the individuals contributing the maximum amount to their TFSAs had incomes of less than $60,000 in 2013”.
It describes this chart from the Budget 2015 document (Chart 4.1.4):
So, for example, a little over 20% of the 1.9 million people who maximized their TFSA contributions had incomes between $40,000 and $60,000 (this says nothing about their household income, only their individual income).
Why is this misleading? Well, there are a lot more people who earn under $60,000 compared to over $60,000. So of course it should be no surprise there would be more of them who do anything, including contribute the maximum to their TFSA accounts.
What if we asked the question, “For each income range, of all the people who fall into that range, what percentage of them contributed the maximum to their TFSA?”
First we need data on how income is distributed. For that I went to Statistics Canada table Cansim-1110008 which has the distribution of incomes in Canada up to the year 2012. There were a total of 25.8 million people with incomes. I made a graph of what I found:
I then interpolated this graph and read off the percentage of all incomes which fall into each of the income ranges in Budget 2015 Chart 4.1.4. Here is what I got:
Finally, for each income range, I could take the number of people who contributed the maximum to their TFSA, and divide it by the number of people in that income range. This tells you, for each income range, the percentage of people who contributed the maximum to their TFSA:
This is what chart 4.1.4 in Budget 2015 should have been. It says that a high income person was much more likely to take full advantage of the TFSA than a low income person. The problem with saying that, “…60 per cent of the individuals contributing the maximum amount to their TFSAs had incomes of less than $60,000 in 2013” is like the problem with saying that low income breathe more than high income people. Of course, because there are more low income people! Finally, being able to take full advantage of the $5,500 limit is an indication of being able to take advantage of the higher $10,000 limit.
Conclusion: Increasing the TFSA limit to $10,000 clearly benefits wealthy people more.