Fifty years ago, the average net worth of Canadians under the age of 35 was twice their income. Today, for the same demographic, it’s barely their annual income. In just a generation, the ability to build wealth and find financial security has been decimated. The reason? Many Millennials and Gen Z do not own any substantial assets.
This is, of course, because asset prices, in particular housing, have skyrocketed over the last decade. But the financial plight of younger generations isn’t just about housing prices; it’s also thanks to excessive taxation that disproportionately burdens younger taxpayers and limits the economic mobility and opportunity enjoyed by prior generations.
While discussions of tax reform often focus on the lowest income brackets, the more pervasive problem for younger Canadians is what happens when they begin to move into higher brackets. Particularly in urban and suburban areas, many young Canadians make what look like high incomes on paper by their late twenties and through their thirties. But they keep shockingly little of that money.
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Marginal tax rates, which are the percentage of tax applied to each extra dollar of income earned above the previous income bracket, are particularly punitive to younger workers as they move up the career ladder or take on extra work. In most provinces, combined federal and provincial marginal tax rates on income between about $100,000 and $137,000 range from approximately 31 percent to 38 percent, climbing to over 40 percent at higher incomes (with top rates reaching 53.5 percent in some provinces). In the U.S., at similar income levels, most states impose a total marginal rate (federal and state) of 28–35 percent, with only high-tax states like California slightly above 40 percent for top earners. While Canada’s top federal rates were reduced in the 1990s, the reality is that bracket rates and thresholds for middle-class and upper-middle-class earners haven’t kept up with wage growth and inflation, meaning more young workers are falling into higher tax brackets and paying higher marginal rates than older generations at comparable career stages. Essentially, many younger Canadians who struggle to pay their bills and own nothing today are being taxed the way c-suite executives and only the highest earners were a generation ago. This is a phenomenon known as bracket creep, and it’s been a quiet killer for Millennials and Gen Z that exacerbates how starkly quality of life and wealth have diverged from incomes. In Ontario, a provincial wealth surtax is imposed once you make more than $93,132, yet the average income needed to afford to buy a home in the province is $168,150. To even rent a two-bedroom apartment in the Greater Toronto Area, you need an income of at least $118,000. Then, add benefit clawbacks to this scenario. Politicians rightly means-test many benefits and rebates so that taxpayer dollars aren’t used to subsidize the wealthy. The exceptions to this, however, always seem to benefit older generations, like increases to Old Age Security (OAS) and the Liberals’ 2021 $500 one-time payment to seniors. Meanwhile, younger workers lose child benefits and GST credits as their income rises, creating effective marginal rates of well over 50 percent. Prior generations not only benefited greatly from lower marginal rates at middle-income levels, they also received more generous tax credits and income-splitting advantages that no longer exist outside of pension-splitting for seniors. Yet, as younger Canadians’ income is worth ever less due to inflation and overtaxation, older generations benefit from that very asset inflation while simultaneously being taxed at lower rates. This is before taking into account younger generations’ significantly higher projected lifetime tax burden of younger generations due to skyrocketing government spending. Canadians aged 16-45 will shoulder 80 percent of the pandemic debt repayment burden, even as they disproportionately bore the economic impacts of COVID-19 measures. High taxes are unpopular at the best of times. But when you can barely make ends meet and climbing the economic ladder seems hopeless, it’s a recipe for anger, disillusionment, and distrust. And young Canadians are right to be angry: the system wants more and more from them, while not just offering less than ever, but actively blocking opportunity. The implicit social contract of fair taxation has been grossly violated by all levels of government. Young Canadians deserve a new tax deal that doesn’t systemically hold them down.
Sabrina Maddeaux is a Director of Communications at Global Public Affairs, a National Magazine Award winner, and a political columnist whose work has appeared in the National Post, Globe and Mail, Toronto Star, and many other outlets. She frequently appears on Canada’s top radio and TV programs, as well as thought leadership forums, to provide political and economic analysis, often from a millennial perspective. In 2022, she was indefinitely banned from Russia under sanctions imposed by President Vladimir Putin as a result of her writing on the Ukraine invasion and international corruption. She recently ran for the federal Conservative Party nomination in Aurora—Oak Ridges—Richmond Hill.
