Back in 1994 federal Finance Minister Paul Martin called payroll taxes a cancer on jobs, and he was right. Alas, because Canada Pension Plan (CPP) taxes continue to rise faster than Employment Insurance (EI) taxes are lowered, the overall effect is for higher payroll taxes. And because both employee and employer pay those taxes, such taxes hit job creation hard because they affect the amount of money available to hire new employees, and to give wage increases to existing ones.



Retro is in, so think back to 1972. Since then, payroll taxes jumped because of two factors - actual increases in the EI and CPP rates, and also the decision by government to expose more of your salary to payroll taxes. For example, back in 1972, the EI tax bite was only 90 cents for every $100 in earnings ($1.26 for the employer). Now it is $2.40 (and $3.36 for your boss.) Also, the amount of income exposed to EI taxes was only $7,800 in 1972 compared to $39,000 now.

Same story for CPP taxes. Back in 1972, CPP rates were $1.80 per $100 compared to $3.90 now for both employees and employers. But that doubling of rates only tells a very small part of the story. Because the amount of income exposed to CPP taxes grew, so too did the overall tax bite. Twenty-eight years ago, only $4,900 worth of income could be hit with the CPP tax. Now it is $37,600.



What does this mean for you? A $40,000 wage earner in 1972 would pay just $158.40 in total payroll taxes, while the company owed $186.48. Assume that overall payroll taxes only kept up with inflation, and the amount paid by you in the year 2000 would be only $682.24 while your employer would only cough up $803.19.

But that's the hypothetical. You will pay $2,265 this year at that salary level. Your employer will hand over $2,640. (That compares to just $1,323 annually in 1990 and $1,622 on your behalf by your employer.)

Put another way, compared to just ten years ago, at $40,000, you have $942 less take-home pay every year. Sure, part of that increase may now be offset by some income tax relief, but the same cannot be said for your employer. She must now fork over $1,000 more in payroll taxes for you than she did in 1990. And while some business taxes may go lower this year, the payroll tax bite is climbing and that tax must be paid regardless of whether a company makes a buck or a billion in profit, or nothing at all.



Why are payroll taxes hard on job creation? For every 100 employees at $40,000, a company must pay over $100,000 more in payroll taxes this year compared to ten years ago. At $40,000 a job, that's two and half jobs your employer cannot create, or $100,000 worth of wage increases not available.



If EI taxes decrease at the same pace as the last couple of years, and CPP taxes shoot upward at the same rate, a $40,000 salary will sacrifice over $300 more every year in payroll taxes by 2003 ($2,567 in total.) Their employer will hand over about $230 more ($2,871.)

So, if you want to know where your wage increases are, don't ask your boss - ask Paul Martin.