Make an extra dollar; pay 68 cents tax.

That’s the kind of economics that low- and middle-income earners face if they try to make more money, says an analysis by the C.D. Howe Institute.

In fact, the study finds, low- and mid-income earners face a higher tax rate on each extra dollar earned than high-income earners.

The Howe analysis finds that the lower income groups face a double penalty as their income increases. Not only does their tax rate increase with their income; they also face clawbacks of benefits that they have been receiving.

The very, very lowest income earners — those with less than $15,000 of annual employment income — manage to keep their extra income thanks to the federal government’s Working Income Tax benefit, the study found.

But for those earning more than $15,000 a year, “marginal effective tax rates” increase rapidly. Marginal tax rates are not the over-all tax rate, but the amount of tax paid on each additional dollar earned.

The study takes the case of a fictional Ontario couple with two children earning a combined $40,000 a year, with the husband working full-time and the wife part-time.

If the wife gets a full-time job, she’ll make more money. But the family will see reduced child tax benefits, and lower HST refunds and other benefits.

“For every extra dollar she earns, she might lose up to 68 cents through income taxes and reduced government benefits,” the study estimates.

That’s a marginal tax rate of 68 per cent.

Quebec families face the highest marginal rates, the study found, but Ontario is also quick to tax.

Ontario’s marginal rates generally exceed 50 per cent for families with incomes between $25,000 and $45,000, the study found.

In other words, for families in that income range, the family pays 50 cents in higher taxes or lost benefits for every additional dollar earned through employment.

That’s a very high tax rate. For 2013, the top federal marginal tax rate — charged on income exceeding $135,054 — is 29 per cent. The top provincial marginal rate — charged on income exceeding $509,000 — is 13.16 per cent but, the this rate can be as high as 20.53 per cent because of several levels of Ontario surtax.

Adding the two together gives a top marginal rate of 49.53 per cent for very high income earners.

The study argues that the high marginal tax rates tend to discourage child-caring spouses from working.

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