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10 Tax Memo 1 (1956)

handle is hein.journals/taxmmo10 and id is 1 raw text is: TAX No. 10 MEMO March, 1956 CANADA - U.S. PERSONAL INCOME TAX Comparisons of our tax structure with the American are always interesting in view of the many differences in the treatment of identical situations. Particularly is this true of the personal income tax, under which there are some marked contrasts in impor- tant respects. The nature of many of these variations is unfortunately not fully under- stood, and in the present study we attempt to clarify some of the principal points of confusion in the area of exemptions, deduc- tions and rates. Particular attention has been devoted to the deductions that an American tax- payer may claim. While some of these items are similar to those available to a Canadian taxpayer, there are a number of interesting divergencies. The optional standard deduction, which is peculiar to the United States income tax structure, frequently gives rise to confusion when the scope of allowable deductions is being com- pared. For this reason its role is described in some detail. Of special interest to many Canadians is the so-called income-splitting device, the use of which affords tax relief to many married taxpayers in the United States who elect to file a joint return. The tax savings from this device are substantial under some conditions, although the general claims made for it have been somewhat exagger- ated. The study demonstrates the actual tax savings that result at various income levels. In preparing this study a comprehensive comparison of the burden of personal income taxes in the two countries was not contemplated. Such a comparison would involve taking into account the personal income taxes levied by more than thirty states as well as by a number of cities in the United States. Furthermore the taxation of capital gains in the United States would have a bearing on the overall burden; and although the mechanics of capital gains taxation are described, this aspect is only touched on for the purpose of examining the deductibility of capital losses from income. Additional copies of this Memo may be obtained on request. TAX FOUNDATION wftft CANADIAN

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