ยป Income Splitting is Bad Policy
The Conservatives have proposed subsidizing stay-at-home mothers with income tax splitting. This dovetails nicely with their policy against socialized daycare to keep women in the kitchen and out of the workforce.
Simon linked me to two good criticisms of the policy in the Globe & Mail:
- Although it sounds fair, income splitting actually makes domestic labour tax-free, creating a huge opportunity cost for working outside the home
- And income splitting overwhelmingly benefits richer families, doing nothing for single parents and families that need two incomes just to make do
I think that income splitting would be a fair policy, not just for couples with a stay-at-home parent and not even just for couples with children.
An argument can be made that the state should not be recognizing, sanctioning, and giving special rights and obligations to certain relationships, but the state does do that with marriage. Given that framework, I think it is fair that a couple that have made a government-recognized and -enforced, legal commitment (i.e. civil or common law marriage) to financially support one another and to be responsible for the other’s debts and obligations, should also have this recognized in tax law.
From the point-of-view of someone outside of a marriage that has an $80,000 annual income, what difference does it make if one partner brought in $50,000 and the other $30,000, or if they each brought in $40,000, or if one brought in $80,000 and the other $0? So then why should the taxes paid by each of those hypothetical couples be different?
I would support full, unlimited income splitting for all married couples in Canada, regardless of age and amount of income, as in done in US tax law.
As for the argument that it would overwhelmingly benefit richer families, to me that is not in itself an argument against a policy.
Don
5 Apr 11 at 12:24 pm
Actually, after having RTFA, I see that the first Globe & Mail article does a good job of partially answering my question “why should the taxes paid by each of those hypothetical couples be different?”
In the G&M piece, she shows how two $110k-income couples, one 110/0 and one 50/60, actually have different real standards of living, because the stay-at-home spouse in the 110/0 couple is able to do things like cooking, home repairs, and renovations that the other couple cannot spend as much time doing themselves, and so they either spend money for others to do it or they just have less of those things.
That is a great argument, and seems valid for the extreme 110/0 case. But what about the 80/30, 70/40, etc cases, and any other cases where both of the partners have full-time employment? The 110/0 case has a quality of life = $110,000 + extra domestic labour and so should pay higher taxes than the 60/50 case given in the G&M piece, but it seems that the other cases all have an equal quality of life = $110,000 + no extra domestic labour, and yet the 80/30 case pays significantly more in income tax than a 60/50 case.
The Tory proposal, which limits the amount of income that can be shared to $50,000 might be a somewhat reasonable compromise, then. A better way of doing it might be to limit the amount of shared income to the income of the lower-income spouse – I think that would prevent the subsidization of domestic, unpaid labour (i.e the 110/0 case). Of course, it also shouldn’t be limited to couples with children under 18.
Don
5 Apr 11 at 12:52 pm
Data put out by the CCPA suggests this policy would benefit the top 13% of Canadian taxpayers, while costing multi-millions in lost tax revenue.
Now, if this is a good thing depends on your position on the end goal of a tax system: the two extremes are either redistribution of income towards equality or funding the necessary administrative structures of a society at a minimum cost to the population.
In contemporary political systems, the redistribution of income is not through direct transfers — it is done through implicit income like socialized medicine, free schooling, subsidized housing, community centres and the like.
The Conservatives belief the latter; the happiest societies in the world such as France, Sweden, etc focus on the former.
This policy is great if you are in that 13%. Otherwise the lost tax income will mean the rest of the population will lead extraordinarily less happy lives.
Your choice. An generally impoverished population, topped by an extremely wealthy aristocracy, or a solid, happy populace where most people are privileged with the good life.
Stewart
5 Apr 11 at 1:09 pm
@Stewart: As you said, those are the two extremes. I recognize redistribution as a necessary and valid goal of taxation. But I don’t judge each individual tax policy primarily by how much it redistributes. That’s what I was trying to express when I said “As for the argument that it would overwhelmingly benefit richer families, to me that is not in itself an argument against a policy.”
The argument that income splitting would reduce government revenues too much, in a way that we can’t afford and can’t reasonably make up without unwarranted program cuts or increased taxes elsewhere, is an argument that could convince me that income splitting isn’t practical right now even though it’s a policy that I think is fair. Analogously, I would prefer it if my province could institute universal pharmacare, but also think that this might not be practical now – it might be something for which we have to wait for another decade or two, until the wealth of our society has increased significantly.
Don
5 Apr 11 at 2:32 pm
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