Trudeau’s middle class would get $3 billion back in tax, thanks to the country’s richest

WATCH: Liberal leader Justin Trudeau announced the first key pillars of his platform today. Mike Le Couteur has all the details and reaction, while Tom Clark explains how this announcement will affect the upcoming federal election.

OTTAWA — Three years after becoming Liberal leader, Justin Trudeau finally unveiled part of his economic strategy. Here’s a break-down of what you need to know, and a look at whether this plan could work.

The theme: Fairness for the middle class.

The two key planks: A child benefit and a new personal income tax structure.

Who’s the “middle class”? Trudeau’s definition of the middle class is those earning between $44,701 and $89,401 annually in taxable income.

What Trudeau would take away: The Conservatives’ proposed income splitting and the prime minister’s recently augmented universal child care benefit.

READ MORE: Trudeau unveils major economic plank

What he’d add: A fifth tax bracket for anyone earning more than $200,000 per year, which Trudeau said will create $3 billion in federal revenue annually. To replace the universal childcare benefit, the Liberals would create the “Canada child benefit,” which he described as a monthly, tax-free cheque for homes with children.

WATCH: Justin Trudeau says he would raise taxes on top 1 per cent to help pay for middle class tax cut.

 What Trudeau’s middle class gets:

• For the least wealthy Canadians, the child benefit starts at $6,400 per child younger than six, and at $5,400 for each child between six and 17 years old. As for the “middle class,” according to information provided by the Liberals, a family with a household income of $45,000 and one child younger than six years old would receive a child benefit of $5,380 annually; the same home with a four year old and an eight year old would receive $9,850; if that household had a four, five and 12 year old under the roof, they would receive $15,800 annually.
• Income tax for Trudeau’s middle class (earning between $44,701 and $89,401 annually) would drop to 20.5 per cent from 22 per cent. That rate drop, he said, would mean up to $670 per year, per Canadian in that bracket.

What’s in it for Canada’s poorest:

• Asked what this plan does for the poorest in Canada, Trudeau turned to the child care plan which would offer a single mother or father earning $15,000 of taxable income per year an additional $6,400 per year; the Conservative plan, on the other hand, offers $5,825, he said.

How does the math work out?

The changes to the income tax brackets would be revenue-neutral; the lower taxes for the “middle class” would cost $3 billion annually, while the higher taxes on the wealthiest earners would generate $3 billion, the Liberals said.

The child benefit, however, would cost $4 billion per year. Trudeau said nixing income splitting would cover $2 billion, while the federal surplus would cover much of the rest.

Trudeau said he also intends to cancel Conservative plans to increase the Tax-Free Savings Account cap to $10,000. Although he maintains this benefits wealthy Canadians, the Conservatives pointed to studies suggesting most of those who max out their TFSA contributions earn less than $60,000.

WATCH: Justin Trudeau’s Liberal plan for child benefits.

How viable is this plan?

Fundamentally, this is a redistribution of income from the wealthiest Canadians to what Trudeau and the Liberals have determined is the country’s middle class, said Ian Lee, a professor at the Sprott School of Business in Ottawa.

Trudeau’s plan will, in essence, take $3 billion a year out of the pockets of the countries doctors, psychiatrists, university presidents, deputy ministers, and partners in accounting and law firms, and shift it to lower earners.

Has Canada already struck the right balance of taxing and distributing or does the system need to become more progressive? That’s a political question, and one reason for elections, Lee said.

The French government tried a similar tax maneuver three years ago, he said, offering a warning: Taxing the richest in the country led to an exodus, however, and the government eventually had to rescind the tax measure.