Tax system not built to keep up with inflation — and it's hurting some Canadians more than others

financialpost.com:

Inflation has been on the top of many Canadians’ minds recently, with the year-over-year increase in the consumer price index (CPI) hitting a four-decade high of 8.1 per cent in June 2022. While inflation has started to cool, when the effects of higher inflation are combined with tax provisions that essentially ignore it, “the pain for earners, savers, and recipients of benefits,” can be multiplied, according to a new report issued this week by the C.D. Howe Institute.

In “Double the Pain: How Inflation Increases Tax Burdens,” the C.D. Howe Institute’s William Robson and Alex Laurin identify problematic interactions between inflation and taxes and highlight some fixes, notably indexing various thresholds and amounts to the CPI, and not making matters worse for investors by potentially increasing the capital gains inclusion rate.

Before delving into some of the specific findings of the report, let’s take a step back and review the current indexing system and how various tax items are adjusted for inflation.

Most (but not all) income tax and benefit amounts are indexed to inflation. You’ll recall that in November 2022, the Canada Revenue Agency announced the inflation rate that would be used to index the 2023 tax brackets and benefit amounts would be 6.3 per cent. Increases to the tax-bracket thresholds and various amounts relating to non-refundable credits took effect on Jan. 1, 2023. But increases for certain benefits, such as the GST/HST credit and Canada Child Benefit, only took effect recently, as of July 1, 2023, which coincides with the beginning of the program year for these benefit payments.

All five federal income tax brackets for 2023 were indexed to inflation using the 6.3-per-cent rate. This makes Canada