MSP: BC’s Deceptive Tax

British Columbia has a hopelessly regressive tax called the MSP (medical services plan), and by regressive, I mean the more you make, the less you pay, proportionally speaking. If you’re making $30,000/year you’re paying more in MSP than income tax, while a person making $300,000 hardly even notices the MSP amount. Before we delve further into the MSP, understand that all taxes fall into one of four categories:

  1. Progressive taxes. Taxes that go up as your income rises. An example would be income taxes found in Canada (outside of Alberta). This is where someone might pay 5% on their first $50,000 and $10% on their next $50,000.
  2. Proportional taxes. These are also called flat taxes. Alberta is the only province in Canada where everyone pays 10% of their income no matter if they make $100 or $100 million. Consumption or sales taxes are also proportional taxes (the more you spend, the more you pay).
  3. User Pay taxes. These are taxes that are charged on a per use basis, say  a toll on a bridge or highway.
  4. Regressive taxes. These are taxes where everyone pays the same amount in absolute terms no matter their income level. British Columbia’s MSP is an example of this. Tolls and MSP differ in one major way in that a toll is a per use fee, while MSP is a tax that you pay no matter if you use the service or not.

The fourth tax is the most unfair, and it’s not just me who says this. Here is Andrew Weaver, BC’s lone elected Green Party member, to giving his critique of MSP:

Taxes are either hidden or open. Income taxes and value added taxes such as the GST/HST are open or transparent taxes. Gas taxes and portions of the Provincial Sales Tax are hidden taxes because the tax is embedded within the end price. Hidden taxes tend to make us happier because we’d rather live life not knowing how much we’re actually paying in tax. This is one reason why people were so upset 25 years ago when the government switched from the hidden 13.5% Manufacturers Sales Tax (MST) to the open 7% Goods and Services Tax (GST). The MST was hidden in the price while the GST was in your face on each purchase. Make no mistake about it, the MST was embedded in the price paid by the end user even though there was no tax line item showing up on the bill.

As was  mentioned earlier, the MSP tax is clearly regressive because the poor family working their way through school making $30,000 per year is paying 6% of their income toward this tax while the family making $30 million is paying 0.006% of their income on this tax.

Furthermore, because they call it a “health care plan,” it’s essentially a hidden tax in that people don’t really even consider it a tax. This is a bonus for the government because they can brag about the province having the lowest income tax rate in Canada while totally glossing  over the fact that the progressive income tax cut has only been made possible by increasing the regressive MSP.

Furthermore, it all goes into the same pot. Whether it’s school taxes, gas taxes, income taxes, sales taxes, or MSP — it all goes into the same general revenue stream for the government. The amount collected by the “school tax” has no bearing on how much they spend on education, nor does the MSP have any bearing on how much they spend on healthcare.

The question of why we are okay with this scheme lies with our propensity to demand our cake and to eat it too. We want politicians to give us lower taxes and higher benefits at the same time. As a result, politicians interested in getting reelected are forced to come up with creative methods of taxation. The most popular methods today are to ether call the taxes “green” or to not all call them taxes at all.

The MSP tax is getting worse every year as it becomes increasingly regressive — outpacing inflation by a significant margin, and yet at the same time the cutoff for getting a break holds steady at $30,000.  Individuals and families below the cutoff get a break depending on their income, but unlike other forms of taxation that are indexed to inflation, MSP remains at the $30,000 cut-off every year.

To highlight where MSP is at today, I will show you two graphs. The first one displays the level of provincial income tax + MSP – tax credits that one would pay as a family of five from $0 to $130,000. The second graph zooms in on the regressive zone, showing five different income levels from $31,000 to $35,000. As the graphs evidently show, a family making $31,000 is paying a lot more tax than a family making $35,000. (Tax rates are less than $0 below $21,000 because the tax credits received are more than the taxes paid.)

Oh, and one more interesting morsel. If you have two families across the street with identical situations except one will make $30,000 this year and the other $29,999, the family making that extra dollar will pay about $500 more in tax thanks the MSP.

Does this seem fair to you? I sure hope not!

BCTaxrate

Figure 1: British Columbia’s tax rate (taxes minus credits) from 0 to $130,000.

TaxratesBC2

Figure 2: Net taxes paid are regressive from $31,000 to $36,000.

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