There is some confusion lately regarding the proposed expansion of the Canada Pension Plan. Supporters of CPP, for instance, argue that the federal government has a responsibility to provide for retired Canadians and that Ottawa is capable of doing so without any unintended consequences.

Currently, the CPP contribution rate–levied on both employees and employers–is 4.95% on income between $3,500 and $51,000, for a combined rate of 9.9%, per employee. Self-employed Canadians, on the other hand, are responsible for both the employee and employer contributions. New proposals, however, suggest increasing the contribution rate by 1.55%, while expanding the earnings cap to $102,000. In any case, the employee and employer lose a portion their disposable income and revenue.

Here, the effect of taxation is palpable. The consumer has, for every dollar levied in taxes, one less dollar in disposable income. Similarly, the producer has one less dollar in expendable capital. This, in effect, reinforces chronically lower consumer demand and creates even more economic uncertainty for producers. Any increase in taxation, such as expanding the CPP contribution rate, exacerbates this effect.

Read policy analyst Shaun Fantauzzo’s piece here.