Canadian_Retirement

Increase in CPP is a tax on employers

Published On December 9, 2013 | By Joseph (Ken) | Business, Retirement
 cpp explained

How we might double CPP pensions

Of course, this would be accompanied by a proportional increase in premiums.”

Off course it would.

The reality is that all government funding is paid for with tax dollars, the only question about an increase in CPP pensions is who’s going to pay for it.

The problem with increasing the CPP contributions under the current system is that the additional cost to the employer does not benefit the employee. It is solely a tax on the employer to pay for current CPP underfunding.

Although every dollar the employee pays into CPP goes towards their future CPP fund, every dollar the employer pays into CPP goes towards paying current recipients and paying costs to administer the system.

I base that statement on the following two arguments:

1) The current source of CPP funds is = 50% Employee CPP paid + 50% Employer CPP paid 

2) The current outlay of CPP funds is = 50% of CPP payments invested + 40% of CPP payments paid to current recipients *1 + 10% of CPP payments administers the system

(*1 as per 40% of existing CPP contributions go to fund current recipients)

When an employee pays $1 right now, $1 goes into his/her CPP fund whereas if an employer pays $1 right now, $0.80 helps pay for current CPP recipient and $0.20 pays for administration.

So when the CPP fund is doubled and the $2 the employee pays goes to his/her CPP fund, where does the additional dollar an employer pays go?

 

Like this Article? Share it!

About The Author

Joseph (Ken)
(Ken) is a Registered Public Accountant with over 25 years of public practice experience in the accounting profession. Ken specializes in accounting information systems, taxation and financial reporting.

Comments are closed.