Removing income splitting is bad policy?

[Martin Chriton]

I've been struggling to justify removing income splitting as anything but bad policy. Instead of removing, flaws could have been addressed.

The arguments I've seen are typically along the following:

1. Argument for income splitting - http://business.financialpost.com/legal-post/vern-krishna-income-splitting-is-fair
2. Argument against splitting - http://www.taxfairness.ca/en/news/income-splitting-huge-tax-cuts-rich-families

The arguments for income splitting seem perfectly logical:

• With income spitting, families with same taxable income would pay the same amount of tax. That is, families with dual incomes earning $100,000 x 2 would pay the same tax as a married family with a stay at home parent and breadwinner earning a $200,000 income.
• From a legal perspective, the family is earning that money as a unit, e.g.: in the event of divorce it's split
• Much of the tax code, e.g.: child benefits looks at the aggregate family income. Without income splitting, you run into scenarios, where families both don't qualify for the child credits and pay excessive taxes.
• Reduces the motivation for tax avoidance, available to only a minority/privileged few, e.g.: running business income through family members. Yet more fairness.

The common argument against income splitting is flawed. That is, since the Harper implementation mostly helped select 'wealthy' families we need to throw the baby out with the bath water. If the revenue was a concern, ideally, the change could be kept near tax neutral, e.g.: raising the margin rates in some brackets -- or have separate married brackets like in the US. It likely won't have made for as good of politics for JT but seems like it would've been the most equitable approach.

Dual income families in the US don't have a similar loophole in the tax code where they can pay less than other families at the same aggregate income because of the concept of joint returns.

For higher income families with disparate incomes, this is one the more significant policy issues that can help justify IMHO emigrating to the US.

[eyeball]

The arguments for it still smack as mostly being a benefit to a small number of people. There's still little reason for the vast majority represented in the nay column to get excited about this no matter how the pie is sliced. The whole issue seems more geared towards maintaining the fiction of Conservative fiscal prudence and concern for taxpayer money and especially the little guy's - the majority of Canadians that is. The option of indignantly packing oneself off to another country is likewise so limited as to underscore just how few people this really affects.

What would the arguments for income splitting look like if they were presented on a graph alongside the graphic depicting arguments against it?

[TimG]

I've been struggling to justify removing income splitting as anything but bad policy.

People who oppose a tax system based on family units instead of individuals do so for ideological reasons. There is no logic to it. It important to remember that all government benefits are assessed based on family income rather than individual income so simple fairness should require that taxes be assessed on a family unit. Edited March 29, 2016 by TimG

[Martin Chriton]

The arguments for it still smack as mostly being a benefit to a small number of people.

I don't think we can justify removing policies because they only benefit a small number of people.

We don't allow people to murder same sex couples even if they are a small group of people.

I'm also not convinced incoming splitting benefited only a 'small group' of people. Not the majority, but I doubt it's small.

The option of indignantly packing oneself off to another country is likewise so limited as to underscore just how few people this really affects.

Some estimates have 1 million Canadians in the US out of 35 million (3%). Most of the top students in my graduating class moved to the US (engineering). I don't think it's a small number. I don't think this policy by itself would do it; but a combination of bad policies makes Canada not competitive for many that have ambitious career aspirations.

Edited March 29, 2016 by Martin Chriton

[eyeball]

Some estimates have 1.3 million Canadian children living in poverty, which suggests their parents probably are too. If Harper was truly committed to fiscal prudence and family values he wouldn't have steered his meagre surplus away from those in real need.