Jennifer Robson / iPolitics.ca
In The National Post, Tasha Kheriddin critiques a recent study on income splitting by Tristat Resources for The Broadbent Institute. Kheriddin argues that income-splitting is just a matter of establishing fairness between families with kids and those without.
But she misses the key point of the Tristat study: Income-splitting won’t treat different families with kids equitably. The impacts depend on household composition, household income — even the province in which you live. Only a fraction of families would be big winners; most would get little or nothing. The study points out that the full impact of taxation depends not just on taxes coming off a paycheck, but also on deductions and credits on the tax return and the government benefit cheques a family receives.
Both the Broadbent Institute and Kheriddin have used references to the TV show Mad Men(which, by the way, opens in 1960, not the 1950s — and Matt Weiner will be peeved if you didn’t notice that). So I’m going to continue with that theme. Spoiler alert if you’re not at least at Season 6.
Let’s look at three households on the show: Don and Megan (dual income, no children resident full-time), Betty, Henry, Sally, Bobby and Gene (single income, three children), and Joan, her mom and Kevin (single income, one child). Now, let’s move them to Canada in 2014.
Don has three kids but they aren’t living with him so he and Megan won’t qualify for income-splitting. He pays child support to Betty and this is treated as income for the kids, not Betty. Don gets no deduction for it and Betty doesn’t claim it as income; neither does Henry. The amount Don pays in child support is reduced by the amount that Betty claims in various tax credits and benefits for the three kids. Don and Betty are legally the ones responsible for the care of the the three kids and their respective incomes in this regard have been “split” already — outside of the tax system. What happens if income-splitting is introduced? No one seems to know how income-splitting within the tax system is supposed to handle families where kids spend time in two households.
Betty is receiving the Canada Child Tax Benefit (CCTB) for Bobby and Gene (Sally is too old for it) and the Universal Child Care Benefit for Gene (the only kid still eligible). Her CCTB amount is calculated taking into account Henry’s income. Henry gets to reduce his taxes by claiming Betty as a spousal dependent (Don can do this with Megan too, but she makes enough that it cancels out the credit). Henry also claims part of the cost of their live-in caregiver for Bobby and Gene.
Our tax and benefit systems are already “splitting” Betty and Henry’s incomes for the purpose of credits and benefits that flow back to that household. If Henry is able to transfer $50,000 in income over to Betty, under our progressive tax rates, Betty’s new income taxes will be lower than what Henry saves on his taxes — so the household is further ahead. At the same time, all the child benefits go unchanged (remember, they already were based on total household income). Betty now claims the childcare expenses deduction, not Henry, but the net difference is negligible because the deduction is capped so low.
Overall, a big win for the family in the manor home. So is Henry and Betty’s tax situation now more ‘fair’ with income-splitting compared to Don and Megan’s?
Finally, Joan earns more than your typical single mom as a partner at SC&P. But she’s the only earner in her household and makes less than Don or Henry. Joan gets the same kinds of child credits as Betty but she can’t claim a deduction for childcare because Kevin is looked after by her mom. Joan is able to claim her mom as an adult dependent so she also gets some “splitting” of income. But the 2011 Conservative platform is pretty clear that only “couples with dependent children” are going to get access to income-splitting. Sorry, Red. You work hard and play by the rules — but this policy isn’t for you.
So, three very different households who already get some form of “splitting” either inside or outside of the tax system. The lesson here is that you have to look at the full incidence of taxation, which includes credits, benefits and transfers. Monkeying about with the basis of taxation is no small thing. Income-splitting for couples with kids has the very real potential of introducing massive new problems while trying to fix something that may not really be atax problem at all.
One last thing. Let’s say Henry takes Betty to Paris to patch up their rocky marriage. (Note to Weiner: If this happens in season 7B, I want a writing credit.) During their time in the City of Light, they learn that French couples are able to split their incomes. Henry muses that this might be a good idea for his electoral platform.
Then Betty points out that France has an annual wealth tax, pays up to five years of state-funded parental benefits and has a female labour force participation rate 10 per cent lower than Canada’s. Henry grumbles and decides his platform needs more work.