Income splitting: Another family-friendly Harper wet dream


In a recent blog, I suggested that the Tories’ income splitting proposal favored only the rich, and/or those who believe that the little woman should be kept barefoot and pregnant. This article, appearing in today’s Ottawa Citizen, supports my view.

The author, Kathleen Lahey, teaches taxation at Queen’s University’s Faculty of Law and is author of Women, Substantive Equality, and Fiscal Policy.

 
Shortly after the Harper government took office in 2006, it enacted pension income splitting. At the time, Harper contended that income splitting was the fairest way to compensate seniors for the losses they took on retirement investments when the government enacted new tax rules for income trusts.

In reality, enacting pension income splitting was just the first step in a careful plan to enact a long-held Reformer dream — to allow all couples to split their incomes for tax purposes.

The fact that only couples living on one high income can really benefit from income splitting never troubled the Reformers. Indeed, that was part of its attraction: The biggest tax benefits from income splitting go to single-income male-headed couples, and its proponents believe that income splitting will induce such couples to put extra effort into having children. It is also expected that if the breadwinner’s income is large enough to support the entire family, the other spouse — usually the wife — will not need to nor wish to work for pay. Indeed, the lack of concern over the small (or zero) income-splitting benefits for single, immigrant, racialized, disabled, dual-income, same-sex, and modest- or low-income couples suggests that perhaps their birthrates and child care arrangements are not as important.

Income splitting was a central plank in the Reform platform. And when Reform became the official opposition back in the late 1990s, it immediately demanded that special hearings be held on the merits of income splitting. The special committee struck to investigate this scheme recommended against it because it would be costly ($4 billion for 1998), discriminatory, unfair, and economically counter-productive — it would use government revenues to induce educated and experienced workers to withdraw from paid work instead of remaining engaged in the labour market.

Although Reform failed to achieve income splitting then, the plank remained as the Reform Party renamed itself the Conservative Party of Canada and then became the Conservative Party headed by Stephen Harper, Preston Manning’s former adviser.

The Canadian Reform, Alliance, and Conservative parties have not been alone in their devotion to income splitting. The social conservative John Howard began pushing for income splitting in the early 1990s in Australia, and promised to enact income splitting if elected in 2004. Although his own party scuttled that promise afterward — due to its huge cost — Howard made no secret of his desire to provide “a tax cut to a family that has a mother staying home.”

In the leadup to the 2008 U.S. election, James C. Dobson, head of Focus on the Family, spurred his evangelical lobby groups in the U.S. and Canada to political support of income-splitting after concluding that Obama might repeal the U.S. form of income splitting (joint filing). Dobson bluntly argued that repealing joint filing would endanger child-bearing and marriage.

While Dobson’s campaign in the U.S. was developing, Harper traded several top advisers with Focus on the Family Canada’s Institute on Marriage and the Family Canada (IMFC), including his top adviser David Quist. Quist moved quickly to begin publishing the IMFC Review, which showcased a short article by Jack Mintz arguing that Canada should adopt income splitting. Quist then arranged a parliamentary seminar with Mintz on the issue, followed by write-ups in selected Christian publications and the National Post about the new “income splitting movement.” (Mintz’s name will be familiar to those who have followed the evolution of Harper’s income trust and corporate tax policies.)

Mintz’s three-page paper makes no secret of the fact that income splitting can only benefit couples with one reasonably high income, and would be an expensive program.

Mintz’s policy justification for such a costly and biased tax benefit? Mintz stuck to secular arguments: Income splitting provides incentives to marriage, for women to “choose” to withdraw from paid work, and for women to “choose” to spend their time performing unpaid work in the home and in community organizations.

In the 2008 election, Harper offered voters disability income splitting to let couples caring for a disabled family at home split their incomes. Media discussion of the discriminatory eligibility rules, uneven benefits, and high costs of such a plan resulted in it disappearing quietly. Income splitting appeared again, however, in the spousal rules for Tax-Free Savings Accounts and in the solution devised by Finance Canada for the overtaxation of Universal Child Care Benefits received by low income taxpayers (let the parent split the UCCB with the child to save $168 per year on that tax).

Now comprehensive income splitting is being offered to voters with children under 18. It is expected, by some of Mintz’s colleagues, that once that provision is enacted, the government can extend it to all other couples — “to do otherwise would be discrimination.”

It would be a mistake to see Harper’s latest offer of income splitting as an off-the-cuff or hasty act of desperation. The drive to turn Canada’s individual income tax system into a couple-based system lies at the heart of what he has since the early 1990s believed is right and true and essential for Canada. Or at least for his Canada.

Read more: http://www.ottawacitizen.com/life/oldie+baddie/4548039/story.html#ixzz1INUZLFsS

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One thought on “Income splitting: Another family-friendly Harper wet dream

  1. There are very few couples who each earn exactly the same income. For them income splitting has no benefit. For all others, who have any gap between their incomes at all, splitting to make them more equal would reduce tax. So it is inaccurate to say only the rich benefit by income splitting and the Mintz paper from what i read surely does not say only the rich benefit. In fact the whole point is to ensure all people who share income and spread their money between partners and share standard of living are taxed to notice that .Taxation is after all to just notice behavior and tax it. Income sharing is a reality in most households. Whether this would be a costly program is open to discussion. Yes if we all pay lower tax, government then loses money. But there are two riders to that. One is that it has been unfairly collecting the money so the adjustment is fair. It was unfair to tax one home earning $80,000 30% more than the neighbors who earn $80.000. Tax policy should be fair. But yes, even when fair, correcting for an injustice, there is a cost to government. |But I would also point out that there is also a huge benefit to government. If we notice that some people earn lower income because they are home taking care of the young, sick, handicapped, elderly or dying, we notice a whole sector of the economy that current tax policy ignores – unpaid labor. If we continued to pressure people out of the home we’d balloon our bill for health care and daycare and elder care to a point that would bankrupt government. We just can’t afford to hire 3rd party professionals to provide all that care. |So income splitting is also a way to cut down health are budgets, to keep costs low on elder care in institutional settings. Those billions of dollars of money saved would offset the costs of income splitting. In the end, big picture, income splitting is wise for all of us.

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