Family Tax Splitting

[Saturn]

I agree. But I think that will be even better if the money goes to pay down the debt. The biggest expense for the federal government right now is interest on the debt. Close to 15 cents for every dollar in taxes we pay goes to pay the interest on that damned debt. I'd rather pay it off sooner and pay less in interest. Just like I'd rather pay off my mortgage sooner - the longer you drag it the more you help the banks.

What is the interest rate on the federal debt? What is the interest rate on your mortgage? Which debt should be paid off first?

The implication is that the government should cut taxes and return money to Canadians before it pays down the federal debt. (I would go further and argue that it should never pay off the debt ever and possibly even increase the debt.)

How many years have you spend working in the accounting field? Clearly none. You are arguing with someone who has considerable experience with taxes. I don't think that we are on an even footing here. So I guess I have to leave it at this.

You seem to imply that you have experience with accounting but judging by your post above, I wonder whether your claim is true.

The Internet is a curious place. Anybody can claim to be anything and so most self-serving claims are ignored. Instead, you are forced to defend your ideas without the benefit of your reputation in the real world. By and large, if you are right, you will be able to convince other posters.

The interest on the federal debt and on your mortgage would be surprisingly similar (unless you have some horrible credit rating). Second, not everyone has a mortgage and having one and the size of it are a personal choice. Taxes are not meant to redistribute income from people who own their homes to those who don't. I don't have any debt because I keep my financial affairs in order and I don't think that I should be paying for others' excessive mortgages.

You are always entitled to your opinion and are right to question what you see on the internet. In that case I would recommend a good entry level accounting textbook.

[Riverwind]

You can care a lot about your car but you may not be more capable to fix it than a qualified mechanic.

Kids are not machines and early childhood education by a professional cannot replace a healthy relationship with your parents. If the gov't is going to use tax policy to encourage behavior it should focus on first on helping parents take care of their own kids.

Incidentally, your 'specialization' argument only makes economic sense if the parent can make more money than what it costs to pay someone else to take care of their kids. If a parent needs a subsidy from the gov't to pay the wages of the daycare provider then there is no net economic benefit from the specialization since the tax money to pay for that daycare must come from someone else who is more efficient at producing wealth.

[Saturn]

You can care a lot about your car but you may not be more capable to fix it than a qualified mechanic.

Kids are not machines and early childhood education by a professional cannot replace a healthy relationship with your parents. If the gov't is going to use tax policy to encourage behavior it should focus on first on helping parents take care of their own kids.

Incidentally, your 'specialization' argument only makes economic sense if the parent can make more money than what it costs to pay someone else to take care of their kids. If a parent needs a subsidy from the gov't to pay the wages of the daycare provider then there is no net economic benefit from the specialization since the tax money to pay for that daycare must come from someone else who is more efficient at producing wealth.

Actually, the actual cost of childcare in Ontario is approximately $500/month. So, a parent with two preschoolers would have to earn $1,000/mth + taxes = $13K/yr to cover this. In Ontario, the minimum wage income is over $16K. So even a minimum wage job will provide the family with an additional $3K in income. I can't think of anyone who would not be able to do a minimum wage job. At $10/hr, you'd be up to $21K/yr in income. Now if you have absolutely no skills so that you can't earn more than minimum wage and you have 3 or more preschoolers, you'd be better off staying home. Those I hope are pretty rare cases.

[BubberMiley]

It's considerate of the CPC to make marriage that more attractive to gay couples. I'm glad they're using legislation to encourage gay marriage.

[Wilber]

GST is a regressive tax, not a flat tax. A flat tax means that the rate you pay stays the same as your income increases. People with higher incomes spend less on the GST as a percentage of their incomes than people with lower incomes. Therefore, the GST rate goes down as income increases.

So, flat tax = tax rate stays the same as income increases. GST = tax rate goes down as income increases.

Not so, they are both flat taxes. With at flat income tax, the more you earn the more you pay but the rate is the same. With a GST, the more you spend the more you pay but the rate is the same.

[Renegade]

The point is the clawbacks are based on _family_ income. If the gov't insists on using family income for calculating benefits then it should use family income for calculating income tax payable. The technically fairest way to do this would require spouses to pool their income and pay tax as if they are a single person. However, such a move is a political non-starter so the gov't is talking about leveling the playing field by allowing income splitting.

RW, you hit a key point. If the family is the basic unit which is used to measure income, then everyone should basically be required to file a "family" tax return instead of individual tax return. Tax rates should be then tiered based upon family income not individual income. I'm not sure why you feel that this is a political non-starter.

The current splitting proposal discriminates against single-adult, single-earner families. To be truly fair and consider family income, a family made up of one adult and zero or more kids, shoudl be given the same personal deductions and tier levels as 2-adult families. The current proposal shifts the tax burden to the single-adult families.

[Wilber]

The point is the clawbacks are based on _family_ income. If the gov't insists on using family income for calculating benefits then it should use family income for calculating income tax payable. The technically fairest way to do this would require spouses to pool their income and pay tax as if they are a single person. However, such a move is a political non-starter so the gov't is talking about leveling the playing field by allowing income splitting.

RW, you hit a key point. If the family is the basic unit which is used to measure income, then everyone should basically be required to file a "family" tax return instead of individual tax return. Tax rates should be then tiered based upon family income not individual income. I'm not sure why you feel that this is a political non-starter.

The current splitting proposal discriminates against single-adult, single-earner families. To be truly fair and consider family income, a family made up of one adult and zero or more kids, shoudl be given the same personal deductions and tier levels as 2 adult families. The current proposal shifts the tax burden to the single-adult families.

I would be a windfall for government. It would put more of the family's income into the highest tax bracket forcing them pay even more tax than before.

[Renegade]

I would be a windfall for government. It would put more of the family's income into the highest tax bracket forcing them pay even more tax than before.

Its only a windfall if the tax rates and tiers levels stay the same. The government can adjust those so that it is revenue neutral.

[Wilber]

I would be a windfall for government. It would put more of the family's income into the highest tax bracket forcing them pay even more tax than before.

Its only a windfall if the tax rates and tiers levels stay the same. The government can adjust those so that it is revenue neutral.

Whenever I hear the term "revenue neutral" I want to run for the hills.

Unless you get rid of graduated income tax they will not stay the same. If one member of the family has an income that puts them in the highest rate by only one dollar, their partners entire income will be taxed at the highest rate. How could it be any other way if you tax the whole family as one income and use graduated rates according to taxable income? It would be a big disincentive to living with someone.

[Wilber]

Of course if we had a flat tax, it wouldn't matter.

[Saturn]

Of course you keep arguing that taxes should be levied on family income because it will be more beneficial for you personally. You keep arguing that we should keep creating more complications in the tax system and we should do what will hurt our economy because that will benefit you personally.

That kind of flawed logic doesn't work because what is beneficial for you personally is harmful to most Canadians and for the Canadian economy. Working Canadians won't agree that they should pay more taxes to fund your spouses' vacations more than we already do.

[Riverwind]

Its only a windfall if the tax rates and tiers levels stay the same. The government can adjust those so that it is revenue neutral.

Interesting idea. However, I think the gov't would have to have two seperate tax rates: one for family income and one for individuals. I don't think you could come up with a new lower rate that would tax familes at a reasonable rate and would not end up providing a huge tax cut to single people.

[Renegade]

Unless you get rid of graduated income tax they will not stay the same. If one member of the family has an income that puts them in the highest rate by only one dollar, their partners entire income will be taxed at the highest rate. How could it be any other way if you tax the whole family as one income and use graduated rates according to taxable income? It would be a big disincentive to living with someone.

Let's use a hypothetical example to illustrate what I mean. Lets say husband and wife each have taxible income of $60,000. Assume that the threshold for the taxing at the highest rates starts at $50,000 (ie each of them have $10,000 which is taxed at the highest marginal rate). What I'm saying is that if the threshold was changed to $100,000 but the income taxed was family income (ie $120,000) it is revenue neutral to the government. I think the government would need to look at the broad consequences and could adust rates and tiers so it did not overall raise taxes.

[Renegade]

Of course if we had a flat tax, it wouldn't matter.

If you had a flat tax, to be trully flat it would have to be levied across all income without exemptions or deductions.

Personally I'd be ok with a flat tax. I think it would be fairer and simpler.

[Renegade]

Interesting idea. However, I think the gov't would have to have two seperate tax rates: one for family income and one for individuals. I don't think you could come up with a new lower rate that would tax familes at a reasonable rate and would not end up providing a huge tax cut to single people.

Yes, you are right. It would generate a tax cut to single people, but I would argue that such a cut is warranted.

The government should at least be consistent in what it considers an income generating unit. If it considers the "family" the basic income generating unit, for purposes of determination of beneift eligiblity, then it is fair for it to do so for the purposes of income taxation. However, there is no reason that a single individual should not also be consider a "famiy" in the same context. As it currently stands, for the puroses of benefit eligibility, a single person's income is considered one and the same as their family income. In fact they are considered a family of one.

[Riverwind]

However, there is no reason that a single individual should not also be consider a "famiy" in the same context.

But such a system would provide a financial incentive for couples to divorce because of the potential for tax savings (and this would happen - I know of elderly people who have divorced because they wanted to qualify for benefit programs that they could qualify for as a family).

[Renegade]

However, there is no reason that a single individual should not also be consider a "famiy" in the same context.

But such a system would provide a financial incentive for couples to divorce because of the potential for tax savings (and this would happen - I know of elderly people who have divorced because they wanted to qualify for benefit programs that they could qualify for as a family).

Possibly, but there are already tax rules in place on what the CCRA considers married for the purposes of calculating family income. For example if the elderly couple divorced but still lived in a the same residence in a conjugal relationship, I'm pretty sure that CCRA woudl still consder them "married" under the GAAR if nothing else.

The opposite incentive exist under the income-splitting proposal. There is an incentive to masquarade as married in order to take advantage of income splitting. If two roommates live together howver are not in a conjugal relationship, and there is a disparity in their income, by "marrying", even if in name only, they can get a substantial tax subsidy.

As your example illustrates, no matter what categorization you use, there will be people who will try and reclassify themselves if it is to their advantage.

[Saturn]

Interesting idea. However, I think the gov't would have to have two seperate tax rates: one for family income and one for individuals. I don't think you could come up with a new lower rate that would tax familes at a reasonable rate and would not end up providing a huge tax cut to single people.

Yes, you are right. It would generate a tax cut to single people, but I would argue that such a cut is warrented.

The government should at least be consistent in what it considers an income generating unit. If it considers the "family" the basic income generating unit, for purposes of determination of beneift eligiblity, then it is fair for it to do so for the purposes of income taxation. However, there is no reason that a single individual should not also be consider a "famiy" in the same context. As it currently stands, for the puroses of benefit eligibility, a single person's income is considered one and the same as their family income. In fact they are considered a family of one.

A "family" does not generate income. Individuals generate income. I am sure that you are aware of the fact that your employer pays you for your work, not your family for your family's work. The "family" is an artificial concept, and there is no universal agreement in Canada as to what a "family" is. As far I as know, there is a more or less universal agreement on what an individual is. All legislation in this country applies to "persons", not to families as the fundamental unit in society. Not surprisingly, tax law also uses the person as the basic unit for taxation, not families. If you want to change the fundamental unit of taxation to families, you'd have to be consistent and change all legislation to use the family as the fundamental unit as well. This would make people responsible for what other members of their family do. I don't think that putting you in jail for what your wife did would seem reasonable to you. Similarly, giving you a huge tax break for what your wife doesn't do (work) doesn't make much sense either.

[Saturn]

However, there is no reason that a single individual should not also be consider a "famiy" in the same context.

But such a system would provide a financial incentive for couples to divorce because of the potential for tax savings (and this would happen - I know of elderly people who have divorced because they wanted to qualify for benefit programs that they could qualify for as a family).

Similarly, many people will get married or claim to live in a conjugal relationship to get tax breaks if the proposed change takes place. There are currently incentives in the tax system to claim conjugal relationship but they are not large enough to cause significant number of people to do it for tax avoidance purposes. If income-splitting comes into effect, that would be a huge incentive for people to abuse the tax system.

[Riverwind]

If two roommates live together howver are not in a conjugal relationship, and there is a disparity in their income, by "marrying", even if in name only, they can get a substantial tax subsidy.

Get 'married' also comes with all kids of finiancial obligations should the marriage break up. It is unlikely that any higher income person would enter into a marriage for tax reasons because they would potentially loose a lot more in a future break up.

[Charles Anthony]

Get 'married' also comes with all kids of finiancial obligations

If the tax savings are great enough, we will see the development of "tax-savings pseudo-prenup" agreements to go along with these marriages-of-convenience.

[Riverwind]

A "family" does not generate income. Individuals generate income. I am sure that you are aware of the fact that your employer pays you for your work, not your family for your family's work.

The gov't is free to tax whoever or whatever they want. There is no reason to connect it to what arrangements exist between an employee and an employer.

If you want to change the fundamental unit of taxation to families, you'd have to be consistent and change all legislation to use the family as the fundamental unit as well.

The gov't already treats the family as the fundamental unit for all calculations of benefits so your argument is false. Allowing income splitting is simply a way to make tax collect consistent with the way benefits are calculated.

[Renegade]

A "family" does not generate income. Individuals generate income. I am sure that you are aware of the fact that your employer pays you for your work, not your family for your family's work.

Agreed that the "family" doesn't generate income, individuals do. But you are presuming that we need to tax income in the same way that it is generated. This is not true even today without income splitting or considering family income. For example two people making exactly the same income may pay different amounts of tax. One may be a single parent and is able to claim the "Amount for Eligible Dependant" which the other cannot.

The "family" is an artificial concept, and there is no universal agreement in Canada as to what a "family" is. As far I as know, there is a more or less universal agreement on what an individual is. All legislation in this country applies to "persons", not to families as the fundamental unit in society. Not surprisingly, tax law also uses the person as the basic unit for taxation, not families.

Of course, what is a "family" is very much up for debate. Even what "marriage" is is up for debate, so naturally it is not clear what a family is. However, tax law very much does factor family into tax law. Certain tax arrangements are not allowed if they are not done at "arm's lenght" (ie not within family members). Further many deductions are dependant upon family income, or are transferable between family members (eg tution). In short, I don't think you can clearly point to tax legislation as using individuals as the "fundamental unit", since the tax paid by the individual varies based upon the income and deductions of other family members

If you want to change the fundamental unit of taxation to families, you'd have to be consistent and change all legislation to use the family as the fundamental unit as well.

At least for the purposes of taxation and benefit calculation, I agree and that is what I am advocating.

This would make people responsible for what other members of their family do. I don't think that putting you in jail for what your wife did would seem reasonable to you. Similarly, giving you a huge tax break for what your wife doesn't do (work) doesn't make much sense either.

I guess it depends upon what you think is a reasonable presumption. I think it is unreasonable to assume that you control the actions of other family members, so it is therefore unreasonable to throw you in jail for whatever crime your wife does (assuming you had no role in it). It is however reasonable to presume that a family will pool income and share the proceeds, so it may be fair to tax on that basis. Of course this may not be true in all families.

In my view both models should be accomodated, or better still, make the distinction moot by adopting a flat tax model.

[Renegade]

Get 'married' also comes with all kids of finiancial obligations should the marriage break up. It is unlikely that any higher income person would enter into a marriage for tax reasons because they would potentially loose a lot more in a future break up.

Ok but then you have to agree that getting divorced also comes with all kinds of financial implicaitons as well, such as the implications for support payments, pension plans, inheritances, etc. In either case there are implications and any couple considering changing their family status would need to weigh the benifits vs the consequences.

[Wilber]

Of course if we had a flat tax, it wouldn't matter.

If you had a flat tax, to be trully flat it would have to be levied across all income without exemptions or deductions.

Personally I'd be ok with a flat tax. I think it would be fairer and simpler.

Me to.