Income tax splitting coming to Canada?
Finance Minister Jim Flaherty is reported to be planning to introduce income splitting in Canada. The effects on the taxes of Canadians, especially those with larger families, is potentially very dramatic. In a remarkable bit of precognitive news reporting, the Toronto Star is already listing the groups that are going to hate the idea -- the details of which are not yet known. The paper predicts these groups will claim that the idea is not "progressive". Some quick calculations suggest otherwise.
Finance Minister Jim Flaherty is about to introduce a scheme of income splitting:
The Conservative government is looking at a radical restructuring of the tax system that would allow couples to reduce what they pay by averaging out their income, says a government source.
Of course, this is a bad thing to many people:
But introducing income splitting - something Finance Minister Jim Flaherty could touch on as early as Thursday when he delivers his annual economic update - is likely to set off sharp criticism from groups that consider it unfair to single Canadians and a disincentive to women working outside the home.
Critics say income splitting - transferring income to the lower-earning partner for tax purposes - would alter the fundamental nature of the tax system, making the family a basic unit and the system less progressive.
First of all, how is it unfair to single Canadians? Their taxes remain unchanged. Why is it that a benefit to one group is considered unfair unless it is extended to all groups, even if it doesn't apply to those other groups?
Is it unfair that I didn't receive any compensation for Japanese internment? I mean, sure, I'm not Japanese, nor was I interned, nor was I even alive when it happened, but hey, somebody else is getting some money, so where is mine?!
If single people want to gain the benefit of tax splitting, then stop being single. And then enjoy tax splitting, while at the same time lamenting all the things you have lost in the deal when you agree to share your life with someone else, and all the compromises that come with it.
But enough of that. I'd be curious to know if the people complaining are single themselves, or if they are simply arguing on behalf of single people who have not elected these people to speak on their behalf.
Actually, I'd like to know exactly who these unnamed critics are. They are not named by the Toronto Star. Opposition MPs? Economists? Advocates for the poor? Advocates for the rich?
Unnamed women's advocates are quoted -- sort of. They are quoted from the future:
But it would attract fierce criticism from singles who would feel disadvantaged by income splitting and by women's advocates who argue, by easing the tax burden for families with a stay-at-home spouse, it would tend to discourage women from joining the workforce.
No, lower taxes means that a family would not feel compelled to make two incomes and hand the child-rearing over to other. By that logic, we ought to raise taxes to the point at which no one could afford to stay at home, and so maximize the number of women in the workforce.
Of course, this make sense to advocates. The more women working in miserable conditions, the more their advocacy is required. Make it easy for women to choose to stay at home with their children, and these childless and unloved women's advocates will see their influence wane.
Got that? According to the Toronto Star, these women's advocates are advocating less take-home pay in order to force women into the workforce in order to make money any way they can in order to survive.
Note the tense: "it would attract fierce criticism". Says who? Have these advocates made any statements yet? Or is the Toronto Star assuming what the reaction would be next week. That's not news, that prognostication.
Let's leave the Star's psychic powers aside for the moment and just assume that there will be critics and that they will make the "progressive" argument foretold by the paper.
We don't know the details of the program, so I'm going to speculate and say that you can split your income evenly with your spouse, and then again with your children, but each child is worth only a half share. So a married childless couple can split the income two ways, a married couple with two children can split it three ways, and a married couple with four children can split it four ways.
Let's now suppose three situations. In each only one spouse is making an income, and the other is raising the children full-time. I know this comes as a shock to progressives, who still lament the passing of government-run universal daycare. But for better or for worse, we don't have government-run indoctrination camps for toddlers. So in our bizarre family unit with an unqualified parent raising children instead of a government-paid bureaucrat with a degree in child-rearing, let's further look at three families that make $40,000, $80,000, and $200,000 per year, respectively.
How would the income splitting affect these families?
Using the government's own program for tax calculation, and ignoring provincial taxes, we know that a person making $40,000 a year has to pay $4,583 in federal taxes at the end of the year. However, if you split that income two ways, each share is charged $1,491 in taxes, or a combined total of $2,982. With two kids, the $40,000 gets split three ways, and each portion pays only $537 in taxes, or a total of $1,611 a year. With four kids, it's like four people making $10,000 each. At that level, you pay $56 a year for each contribution, or a total of $224 in taxes.
Wow!
What about the single-income family making $80,000. Going through the same calculations, the current tax hit is $13,822 a year for the married couple, no income splitting. Add income splitting, and the tax hit drops to $9,168 a year. Add two kids, and the family pays $7,355 a year. Add a pair of surprise twins, and the family tax bill goes to $5,694.
And the high-priced executive pulling in $200,000 a year? Currently, married and no income splitting, the family coughs up $47,351 in cash to the taxman. Split the income with the spouse, and the tax drops to $37,864. Two kids and the slice of the pie that goes to Ottawa shrinks to $31,477. Spawn a couple of more heirs to the family fortune, and the family pays $27,144 a year in taxes.
(Note: My numbers differ slightly from the ones the newspaper reported, as provided by the Canadian Taxpayers Federation. The difference is very minor, and it gives me the confidence to extend the calculation to income brackets not covered by the article.)
So what do all these numbers mean?
Look at it this way. If you are making $40,000 a year, and you split with your spouse, your taxes drop by 35%. Two kids, and the taxes drop by 65% from the original tax bill. Four kids, and the tax bill is slashed by 95%!
But if you make $80,000, the effect is less dramatic. Splitting with your spouse drops the taxes by 34%. Two kids takes lowers the taxes by 47%. Four kids and you save 57% in taxes.
If you are raking in $200,000, then the splitting saves you 20%, while two kids 34%, and four kids 43%.
So under this formula, which may not be the one that Jim Flaherty is allegedly going to present, the wealthier you are, the less impressive the impact. Of course this is true. Income splitting is layered on top of a progressive tax structure, so it tends to magnify the effects of a progressive tax scheme.
I don't know why these critics are complaining. It sounds like a great idea for Canadians who are on the lower end of the income scale.
But then there is that $5 billion hit to the treasury. Of course, the federal surplus is $13 billion, so you just know that someone is going to argue that the money is not needed by the government and should be returned to Canadians. Less money for government? But what of those government programs? We need those, and we should be creating more of them. Even if it means forcing the guy trying to raise four kids on $40,000 a year to pay the full $4,583 in taxes, instead of giving him the chance to pay a mere $224. That's $363 a month for groceries handed over to the government.
That $363 in groceries -- the milk, the bread, the vegetables, the juice boxes, the treats, the diapers for the little ones -- is the price these critics will want these families to pay for "progressiveness".
Ironically, given the muted effect income splitting is likely to have on the take-home pay of Canada's wealthiest citizens, it is more likely that these self-styled defenders of social progressiveness will find their greatest support among the ranks of the rich. You just know that's going to be a bitter pill to swallow for Canada's left.
Skew my story on Skewz.com
Rate political news for their bias, read related stories, and leave your own skewed commentary
Search for more opinions from Canadian bloggers on these related keywords
income splitting Canada Jim Flaherty Conservatives Toronto Star
Sphere presents related news articles and blog posts
Sphere It!
Comments
Awesome job, Steve...crunching the numbers thusly pokes the lefties in the eye with their own stick. If PMSH is anything, he is the ultimate defender of the family unit. Bravo!
Being as I'm a single person, I can see no flaw with this fomula. It helps those that need it most...and everyone else is static...no change, good or bad. If this comes into effect, I see it as a major victory during an election campaign to rattle the middle-class into their senses in a way they can best relate..their pocket-books
Bravo again!
One last thought, playing devils advocate for a moment....how will the lost revenue be made up, as I think it will amount to a huge dollar value to the federal treasury? Do you think that it will force the further cutting of fat from wasteful spending programs and 'fluff' that is swallowing vast amounts of coin into black-hole projects? One can only hope!
In case I forgot to say.....BRAVO PMSH!
Are you lefties listening?
Are you????
Posted by: arctic_front at November 21, 2006 11:14 PM
Gimme a break,
If all these families are saving 20, 30 40% in taxes, where is the Govt. going to get its revenue. What kind of a dream world do you live in?
Posted by: Marg at November 21, 2006 11:56 PM
This could also have a second effect of restoring our declining birth rates.
Posted by: Ken in Calgary at November 21, 2006 11:57 PM
I was under the impression that the tax splitting is only between spouses, not children or other dependents. That changes the numbers quite a bit.
Posted by: ChrisR at November 22, 2006 10:07 AM
It seems to me that if in terminating a marriage the assets are split,generally anyways, then why isn't income split during the marriage? This would mean probably that a spouse is no longer a dependant. Children would still be considered as such.
It will create headaches in dealing with "deadbeat dads", and sparated couples etc. but it isn't unworkable.
The Libs will kick and fuss but only because they didn't think of it first.
Posted by: David at November 22, 2006 11:37 AM
Maybe I'm missing something being an American and all, but are you really saying that the Canadian income tax system doesn't yet allow a married couple to file jointly combining all income into one taxable pile? You guys north of the border are required to file individually, even when married?
Posted by: Captain Ned at November 22, 2006 12:05 PM
I am like totally in favour of split income. You buy the beer, and I buy popcorn.
But think of the poor provinces. Ontario takes a percentage of Basic Tax. Dalton has to face next year's election promising a tax hike just to stay even? Bwahahahah! As Quebec collects it's own income tax, Jean Charest can avoid any changes to provincial income. Hmmmmm....I smell a plan here. Did Karl Rove move to Ottawa?
Posted by: john at November 22, 2006 12:31 PM
The idea that income splitting would include children is a complete red herring - it would only be in respect to a couple, although I don't believe there would be any requirement that the couple be married. The only time a child is brought into the equation is in terms of personal allowances. Where the taxpayer is a single parent, there is a possibility to nominate the eldest child as "equivalent to spouse", in cases where no spouse/partner exists. Whether income splitting between a single parent and the eldest child would be considered in the same way as "equivalent to spouse" I do not know, but to my mind it would be a good idea, as it the main problem with income splitting is that it is of no benefit to single parents.
Posted by: jad at November 22, 2006 02:29 PM
Nerd--
As an American moved north, I can understand your puzzlement. And the answer to you question is, yes. The "family" is totally atomized in the Canadian system. You file entirely separate forms, and have to go through the whole rigamarole twice (and they don't even give you tax tables--you have to calculate the whole thing yourself. How idiots do their taxes here is beyond me). Also, to clue you in to the system, you don't get a personal deduction for children. Instead, some office in Winnipeg calculates the check they send you each month on the basis of how many children you have. They "claw back" (as the charming Canadian expression has it) 5% for every dollar the "family" makes over some sum (I've forgetten the amount--$35k?). Also, they give you less once the child hits eight--as if they cost less when they get older! (Perhaps the expectation is that the mother of older children should go to work, though if that's the case the amount should decrease when the youngest child hits eight rather than when each one does so). Finally, what, you might ask, about stay-at-home spouses? How can they get a personal deduction if they don't file a tax return? Well, you can transfer any unused portion of one spouse's personal deduction (comparatively high by US standards, something like $8k), except that for some reason the total amount that can be transferred is a few hundred dollars less than what it would be if the spouse used it in the spouse's own return, that is, you're penalized by having a stay-at-home spouse. Maybe someone who's been around here longer than I have can explain what the logic to that was. Oh, and one final gem of the Canadian system. Whereas in the US the deductions come off the top, i.e., they reduce the amount of income being taxed in the highest bracket, here the deduction is calculated in a convoluted way that means that it comes off the bottom, i.e., it reduces your income that is taxed in the lowest bracket. (The only exception is money put in a Registered Retirement Savings Plan, or whatever the "p" stands for, in which case the money is deducted from the top.
And finally for you Americans out there, in most provinces except Alberta, your provincial tax is a percentage of the Federal. When I lived in Rhode Island, the only state to do something comparable, the rate there was something like 28% of the Federal. In New Brunswick, it used to be as high as 68%, but now it's somewhat reduced, and I think Ontario is around 40%. In Alberta, it used to be 44%, but a while ago they replaced it with a flat rate of 10%. I remember in Massachusetts it used to be 5.9% on "earned" income and twice as much for "unearned" income. Illinois used to be a feeble 2.5%, but I think they taggedon a point or so for education.
And don't even ask about the very high "Employment Insurance" rate, which is basically a subsidy designed to allow people in certain parts of the country to work at jobs that would otherwise be uneconomical.
Posted by: C. Gracchus at November 22, 2006 04:28 PM
C Gracchus, you commented on the absurd Canadian income tax system: "you're penalized by having a stay-at-home spouse. Maybe someone who's been around here longer than I have can explain what the logic to that was."
I sure can.
In the 1980s and '90s, I stayed home to care for my husband's and my children, on his very modest income (he's in a "helping profession" and, with three university degrees and after working 25 years, makes less than an elementary school teacher after 10 years of teaching, just to put things in perspective.)
I stayed home not because my family could afford it but because my husband and I both thought that a parent at home was the best arrangement for childcare for our daughters. (One has just graduated from university and the other is in second year university, and we have a very solid and good relationship with them, something we notice that is not universal. Also, they always had their homework done, do volunteer work in their communities, like my husband and I, and, by God’s grace, have never been in trouble with drugs or the law.)
The radical feminists and their agenda, championed by the Liberal and NDP Parties (with the Conservatives in the '80s under Brian Mulroney, not any better), don't support mothers staying home with their children. Not only do they not support it, they are rabidly and fiercely against it, that is, unless the mother is either single or lesbian or both.
In the mid-'80s, Maureen McTeer (wife of Red Tory ex-PM Joe Clark) as a spokesperson/daughter of the NAC (National Action Committee on the Status of Women) proclaimed that equality for women meant "financial equality." The expectation of the feminist lobby--which was and still is extremely powerful in Canada, in the government, in academia, in the judiciary, and in the MSM (gradually becoming less so, but not enough "less so" for my liking)--was that any woman worth her salt would not be a mere baby machine or a chattel of her husband (their honest-to-goodness assessment of a wife and mother). Women needed to be encouraged to leave hearth and home to earn money (thus, financial power) and to rival men in the boardroom. That was a woman's only salvation, the only honourable path for her to take to bring in the new dawn of new age.
If she had to be a wife and mother, then she'd better do it the feminist way: work outside the home and put her child(ren) in state-run daycare. That way, the government (and all of its social engineering hangers on, very much including the rather large cabal of feminists) "won" twofold: The government could actually tax the working outside the home mom for revenue, and it could indoctrinate Canada's children--which it seems to have done a pretty good job doing, when you look at the massive revolt against legitimate authority we're witnessing in today's classrooms, not to mention the epidemic of behaviour problems, drug and alcohol abuse, single parenthood, STDs, suicides, and the list goes on, amongst Canada’s young people.
If your family made the decision to go against the feminist view of motherhood—that is, if you made the decision to have a parent home to care for your own children, which arrangement often meant the mother staying home—you were considered pariahs, traitors to the cause, and “not for equality.” Check out REAL (Realistic, Equal, and Active for Life) Women, a pro-family group started by Gwen Landolt in 1983, very much in support of the best care for children which they feel is a parent home to care for their own children, and the way they have always been treated by the official, government-funded feminists.
As you can see, not allowing income splitting and taxing single-income families to the max was a very intentional decision on the part of the Liberal government and subsequent governments (until the CPC was elected under PMSH), with the enthusiastic support of the NDP, to discourage women from staying home to care for their children. They needed to be “working,” dammit, and their child(ren) needed the benefit of staterun daycare to turn out the way they were “supposed to.”
Those of us who said, “No way!” were treated like s**t, especially by the feminists and the government bureaucracies that aided and abetted them, like the Secretary of State for Women’s Affairs, under which the NAC/SOW flourished.
I have many personal and other examples of how one-income families who supported the idea of a parent staying home to care for their kid(s) got it in the jugular. One very popular way was to tax us to the max and disallow income-splitting, an idea which was put to the Liberals in the ‘80s. The only government which has even entertained the possibility of income-splitting is the CPC.
Though my family and I are long past being able to benefit from income-splitting (or the $100/child under six/month, which would have seemed like manna from heaven to our family), I think it is wonderful for young people who are starting families and for those who want to care for their own child(ren).
Any other questions? I’ve been in these particular trenches for almost 30 years!!
Posted by: 'been around the block at November 22, 2006 07:12 PM
FYI. I mentioned income splitting to several people at work today. They all agreed that it would be unfair to them because they either want to work or don't have any kids. Where I work having a family is considered a life style choice, and no one wants to "subsidize" a life style choice. The argument is that if you choose to have children you choose to incur the costs that go with it.
I think that the Conservatives will have a difficult time selling this.
Posted by: jgriffin at November 22, 2006 09:13 PM
jgriffin says, "Where I work having a family is considered a life style choice, and no one wants to 'subsidize' a life style choice. The argument is that if you choose to have children you choose to incur the costs that go with it."
How can you even begin to build community with this kind of atomized thinking? Good G*d.
These people you talked to, jgriffin, can't see further than the end of their noses. Who do they think is going to pay taxes to cover their pensions and health care when they get older? Seeing as they haven't had children of their own, it's definitely going to be the children of those families whose "lifestyles" have included having kids.
If these folks you work with don't want to "subsidize a lifestyle choice" of couples who choose to have children, will it then be be a legitimate "lifestyle choice" of these children, when they're paying taxes later in their lives, to refuse to subsidize the pensions and healthcare of these folks whose lifestyle choices include not having children?
I find it chilling the number of people today who don't get what it is about having kids--or rather don't get what it is about NOT having kids. Kids are our whole future. We don't have a future without children. They'd better read some of Mark Steyn's stuff on the demographics of Europe and North America. We're having so few children that all of our social programs and entitlments are in danger of becoming obsolete simply by virtue of the fact that there won't be enough people paying taxes to support us when we 30-, 40-, or 50-somethings are old and retired--or wanting to retire.
I suspect that at the rate we're going, as far as young couples deciding not to have children is concerned, young people aren't going to enjoy the kinds of retirement their grandparents, who DID CHOOSE to have children, are enjoying.
You've got to look past the end of your nose to the future. Otherwise, there might not be the future you were intending.
Posted by: 'been around the block at November 22, 2006 09:51 PM
The gross-up on div.interest ect. has been increased to 40%. as this number reduces the old age Pension $ for $ most elderly will end up paying more not less. Our MSM won't mention this of course. Socket
Posted by: socket at November 23, 2006 11:07 AM
This concept would have made a HUGE difference to my family a few years ago when my kids were little. Its true its takes a village to raise a child, and children are our future so its time for the country to provide more support to families.
It's a big enough issue that if the Tories make this happen - I'll actually vote conservative in the next election for the first time in my life.
Posted by: Katy at November 24, 2006 10:56 AM
Katy, it only takes a village to raise a child IF there are women standing in the doorway, IF someone's home to watch the kids.
I always wondered, while Hillary Clinton gallivanted around the U.S. and the world, WHICH village she was talking about--and WHICH WO/MEN she figured were going to care for the kids. Who was going to care for Chelsea?
Not Hillary. The only way raising kids works is to have loved ones around to keep an eye on them, to pass down our culture, and to teach them how not to be little barbarians. It takes an investment of TIME, and there just isn't any substitute for it.
Posted by: 'been around the block at November 24, 2006 02:10 PM
I'm still amazed that ANYONE actually believes, or even bothers to listen to these liars, known as Qannaddian politicians. Believe it when you see it. Just more attempts at trying to buy you with your own money.
Posted by: Raymond Hietapakka at November 28, 2006 01:52 PM
 
|
|
