Income Splitting [Policy discussion]

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kombat
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Income Splitting [Policy discussion]

Post by kombat »

With Harper's announcement yesterday regarding extending limited income splitting to 2-parent households with 1 or more children under 18, I'm surprised there hasn't been more discussion here. Public opinion seems quite divided on the issue, with the majority seeming to be opposed to it as it does nothing to help child-free families, low-income families, 2-income families with similar incomes, or single parents. The main criticism seems to be that this is being perceived as a vote-buying tax cut for the wealthy (i.e., couples rich enough that they can already afford to have one parent stay at home).

I'm personally opposed to the policy because my wife and I are DINKs, and this is yet another tax cut for breeders that will inevitably have to be made up by increasing taxes on everyone else eventually. But I'm surprised at how many people object to the cut because it doesn't help low-income folks. How do you cut taxes on people who already pay virtually nothing in income taxes anyway? Also, there seems to be an undercurrent of sentiment that basically believes that as long as low-income people are paying any tax at all, then wealthier Canadians shouldn't get any tax relief whatsoever. The logical conclusion to this mindset is that poor people shouldn't pay any taxes, and rich people (whatever that means) should be shouldering the entire financial burden of the country. That seems absurd to me, yet what other conclusion can be drawn from such comments?
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Re: Income Splitting

Post by 2 yen »

I realize this has been 'balanced' by bump ups in other programs that might affect singles with children, lower income people, etc, but the cynical part of me cannot help but think this is, at least in part, a pandering to a certain subset of the Reform movement that sees women as being 'punished' for staying at home with kids. i.e. punished for being Christians. Before folks jump all over me, please know that I am saying a certain subset and that I admit to being cynical. Also know that relatively speaking, not many families will benefit from splitting. I may well be wrong, too, because would Reformers vote for the Liberals or NDP under any circumstances? Maybe not.

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Re: Income Splitting

Post by brucecohen »

I agree with the posters above though I previously said that if there has to be income splitting, it'd be better to give it to couples with young children than to geezers like me and DW. But I'm not convinced there has to be income splitting. I gather that most/all tax economists hate income splitting though I've never understood why -- a Canadian Tax Foundation talk I attended > 20 years ago was way over my head.

I've said all along that cutting taxes is fine if we have the money, but instead of cluttering the system with gimmicks the govt should just shave rates. When the cycle turns and govt needs money, rates can be raised but targeted tax breaks are politically hard to reduce or kill.

I'm concerned that Harper and Oliver have broken open the piggy bank just as oil prices have plunged. Yesterday Bank of Canada Governor Poloz guesstimated that lower oil price will reduce already low GDP growth by a quarter-point. That would be a fair-sized chunk [edited to correct stupid math goof] out of BoC's estimate of GDP growth at 2-2.25%. And I think BoC's projection assumed $85 oil. ISTM the govt should be bolstering its fiscal reserve but, hey, I guess there is an election to buy fight. :(

Note: on CBC Radio this morning Oliver refuted the claim by Ontario's finance minister that income splitting will cost the province a lot in lost revenue. $1 billion/year IIRC. Oliver said there won't be any loss due to how to measure is designed, but added that it's very technical and offered no more details. He said he has sent a letter explaining it to his Ontario counterpart.
Last edited by brucecohen on 31 Oct 2014 12:08, edited 2 times in total.
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Re: Income Splitting

Post by AltaRed »

brucecohen wrote:I'm concerned that Harper and Oliver have broken open the piggy bank just as oil prices have plunged. Yesterday Bank of Canada Governor Poloz guesstimated that lower oil price will reduce already low GDP growth by a quarter-point. That's as much as a 25% reduction in BoC's estimate of GDP growth at 2-2.25%. And I think BoC's projection assumed $85 oil. ISTM the govt should be bolstering its fiscal reserve but, hey, I guess there is an election to buy fight. :(
Ditto. The so called balanced budget turning to surplus is tenuous at best. There is an offset though with the declining loonie. As commodity prices slow and GDP growth slows, the loonie softens mitigating softness in USD denominated oil prices. Not long ago, an oil price of USD$90 was about CAD$95. Today, a USD$82 oil price is still CAD$90. Oct 2014 not yet in this chart.
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Re: Income Splitting

Post by Shine »

Just more complication and frustration to the tax code and filing of one's taxes I think for little benefit.

Tax preparation software companies will have to scramble to address this in their software and many questions remain regarding how the "tax savings" due to income splitting can be deployed to other programs such as RRSP, RESP, and TFSA.

Also is this only applicable to "earned income"? What if a couple are both seniors living on retirement/investment income and have adopted children under 18? I know two couples in my community who are seniors and who have adopted young kids from China - so can they can split their pensions and also splt their income from those pensions under this policy?

This has more to do with short-term politics than sound economic tax policy.
Last edited by Shine on 01 Nov 2014 02:42, edited 1 time in total.
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Re: Income Splitting

Post by queerasmoi »

Agreed, this is as much about splitting votes as it is about splitting pensions. Harper has never in his whole political career attempted to cobble together a broad consensus coalition. He has relied on wedge issues to just barely push him up to that "perfect 38-40%" threshold that gives him absolute power in our electoral system. This is aimed squarely at vote-rich CPC swing seats particularly in Ontario and BC.
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Re: Income Splitting

Post by StuBee »

Well, it was a part of the Conservative election platform... At the same time, Harper's timing (with regards to his own interests) could not be better. For years, the Quebec income tax act has allowed the transfer of all non-refundable credits between spouses. This proposed measure effectively does the same thing (if you currently have children...). Actually, it has two impacts: it lowers the marginal tax rate and it allows a more efficient use of non-refundable tax credits.

Our household will certainly benefit from this situation so I will not complain. I anticipate that for fiscal 2014 we will receive the full 2000$ "refundable tax credit". This is an unexpected windfall.
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Re: Income Splitting

Post by StuBee »

With this measure has the childless couple been encouraged? Not at all. With this measure has the couple with children been encouraged? Yes, and in all cases to the extent that their incomes diverge. The most extreme situation is where the benefit is the greatest: the "traditional" family. The family, traditional or not, is the building block of all societies. All nations must invest in their children or risk, within a generation, the extinction of their polis. A nation of individuals cannot survive. It is when men and women come together and assume responsibility through their children that it can both survive and prosper. This is the family.

Do single parent families exist? Absolutely. They are unfortunate accidents and worthy of societies generosity and condescension and are to be lovingly cared for. They are not the norm. They are to be cared for by those who are the norm. The strong must look out for the weak. But, there would be no weak if it were not for the presence of the strong. The strong allow them to survive and this is good. In this sense, to equip the strong can only be a good idea.

So, to the extent that this new measure does support the family, it is a good measure.

StuBee

P.S. I realize that this post is ideological in nature. However I felt that it was only proper to speak out in favour of the family...
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Re: Income Splitting

Post by queerasmoi »

StuBee wrote: Do single parent families exist? Absolutely. They are unfortunate accidents and worthy of societies generosity and condescension and are to be lovingly cared for. They are not the norm. They are to be cared for by those who are the norm.
It sounds like you are saying, accrue additional privileges to normative families and hope that they use that privilege to help out the "unfortunate accidents"?

I know plenty of wonderful single parent families that were not unfortunate and were not accidents. That's pretty condescending of you. And I doubt your logic would convince any of them to support this wrong-headed policy.
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Re: Income Splitting

Post by nisser »

StuBee wrote:
StuBee

P.S. I realize that this post is ideological in nature. However I felt that it was only proper to speak out in favour of the family...

Your post is actually offensive at best.


This tax breaks targets the people who actually don't need financial help. It's absolute garbage.
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Re: Income Splitting

Post by ockham »

I'm always interested in what the thinking/motivation is behind social/tax policy. StuBee has certainly clarified that for us. It's not pretty.
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Re: Income Splitting

Post by adrian2 »

nisser wrote:
StuBee wrote:P.S. I realize that this post is ideological in nature. However I felt that it was only proper to speak out in favour of the family...
Your post is actually offensive at best.

This tax breaks targets the people who actually don't need financial help. It's absolute garbage.
Let me agree with StuBee, and politely disagree with nisser.

"Absolute garbage", what a nice choice of words furthering your argument. :evil:
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Re: Income Splitting

Post by AltaRed »

StuBee's ideological post, I think, is intentionally written that way to put CPC ideology in perspective. I am not going to take offense at what is, quite frankly, also the pulpit pounding philosophy of much of organized to-the-right religion as well. This policy obviously plays well for the existing 'older' CPC base but I think, does not really do a lot to buy a torrent of new votes... because the traditionalists are voting Cons any way and there ain't a large cohort of new traditional families left that will benefit enough from this policy to cause them to swing vote to the Cons.

I think this proposal is primarily meant to fulfill an election promise which is more likely to buy more votes, i.e. look who keeps their promises!!!! A way to take continued pot shots at the Libs who did not reverse GST or Free Trade or.... Just watch this space come late summer 2015.
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Re: Income Splitting

Post by ig17 »

Andrew Coyne:
The Tory plan ... removes an unfair preference: between two-income and one-income families.

This is a point that seems to elude the critics. Income-splitting isn’t some sort of special tax break for one-income families. It merely put them on the same footing as two-income families. Under the present system, a family with one spouse earning, say, $80,000 pays thousands of dollars more in tax — $4,170 more, according to economist Jack Mintz — than a family with two spouses earning $40,000 each. This is manifestly unfair, even allowing for any value imputed to the “unpaid housework” performed by the stay-at-home spouse (a conceptual and computational morass, probably best avoided).

There are, in other words, two kinds of fairness the tax system should aim to achieve: the vertical kind, which obliges us to tax households with different incomes at different rates, and the horizontal kind, which means taxing households with the same incomes at the same rates. Each is as important as the other.

Once this is understood, most of the familiar objections fall to the ground. The plan doesn’t, as charged, give women an “incentive” to stay at home: it just doesn’t penalize them for doing so. The “costs” of income-splitting are simply the extra taxes currently being unfairly collected from one-income families, while the list of those who are said to be “excluded” from its benefits — single parents, etc. — is only the list of those not currently being discriminated against in this way. With one exception: there seems no reason not to extend income-splitting to all couples, not just those with children under 18. But baby steps: remember, at first it was only allowed for pensioners.
I agree with Coyne.
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Re: Income Splitting

Post by StuBee »

ockham wrote:I'm always interested in what the thinking/motivation is behind social/tax policy. StuBee has certainly clarified that for us. It's not pretty.
nisser wrote:

Your post is actually offensive at best.


This tax breaks targets the people who actually don't need financial help. It's absolute garbage.
queerasmoi wrote:
It sounds like you are saying, accrue additional privileges to normative families and hope that they use that privilege to help out the "unfortunate accidents"?

I know plenty of wonderful single parent families that were not unfortunate and were not accidents. That's pretty condescending of you. And I doubt your logic would convince any of them to support this wrong-headed policy.
Well, I stand by my post. However, on review I realize that I may not have been fully awake when I wrote it. Rather colourful, full of absolutes and extremes. "Unfortunate accident" is an interesting choice of words. Apparently that is what I believe...

As for the word "condescending" I was using it in the old and positive sense: the proper attitude that someone who is in a position of relative strength should have towards someone who is not. As for the term "unfortunate accident" with respect to single parent families it was not my intent to judge (though I certainly appeared to have been doing just that...). I know what it is to be wrong and if I myself am still married it is in large part due to my significant other (I wonder sometimes why she puts up with me...). By "unfortunate" I meant that, in most cases, these single parent household's would have preferred that the situation was otherwise. By "accidents" I meant that this is not to be considered normal and in this sense I am judging as to what is "normal" and what is not.

The term "strong" was too strong and the term "weak" was also too strong (though I am not excused, I will blame this on my current reading. Works and Days, The decline and Fall... and The Institutes... are all old books with relatively extreme language...). "Strong" should be replaced by "more privileged" and "weak" should be replaced by "less fortunate"

I too know some "wonderful single parent families".

Well, I hope that I have successfully dug myself out of a rather interesting hole...

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Re: Income Splitting

Post by Quebec »

AltaRed wrote: This policy obviously plays well for the existing 'older' CPC base but I think, does not really do a lot to buy a torrent of new votes... because the traditionalists are voting Cons any way and there ain't a large cohort of new traditional families left that will benefit enough from this policy to cause them to swing vote to the Cons.
I will get a tax break from income splitting. But it is unlikely to influence my vote. I'd rather see the money put to better use, such as paying down the national debt, or increasing transfers to provinces.
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Re: Income Splitting

Post by adrian2 »

Quebec wrote:I will get a tax break from income splitting. But it is unlikely to influence my vote. I'd rather see the money put to better use, such as paying down the national debt, or increasing transfers to provinces.
Ever since the Mike Harris era, for Ontario tax returns there's a special box on the tax return allowing taxpayers to donate their refund towards reducing Ontario's debt. Apparently, a really miniscule amount has been collected so far.
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Re: Income Splitting

Post by ig17 »

Quebec wrote:I will get a tax break from income splitting. But it is unlikely to influence my vote. I'd rather see the money put to better use, such as paying down the national debt, or increasing transfers to provinces.
Income splitting will vacate some tax room at the federal level. Provinces are free to raise their taxes if they need the money. As always, they can target "the rich".

This is not a novel idea. Quebec raised QST from 7.5% to 9.5% after Harper cut GST by 2%. I recall reading somewhere that Harper tacitly supported Quebec action.
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Re: Income Splitting

Post by Zipper »

The Zipper's #1 son. Three children, 13, 9, and 7.

He is a 42 year old well paid computer programmer.

Daughter-in-law is a stay at home mother.
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Re: Income Splitting

Post by kcowan »

A new (or two) vote for CPC Zipper?
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Re: Income Splitting

Post by ghariton »

I think that the main reason is the one given by AltaRed upthread: Be seen to keep one's electoral promises. I can see the ads already...

A lot of the debate depends on whether you consider the "natural" unit in our society to be the individual or the family, and if the latter, how constituted. As we don't get agreement, or at least understanding, on this point, we are talking at cross purposes.

A few other points: Many countries, including Canada, have long used the tax system to encourage more children. Tax deductions, as we had them before, definitely helped the rich more than the poor. The switch to tax credits made it more progressive, but still did nothing for the poor, or indeed anyone who doesn't pay income taxes -- about half the population. That goes back to the OP. Tax cuts, however designed, will not help the lower income among us. The only measure that will help is an increase in social welfare payments. (Low-price daycare may help the working poor, but the Quebec experience suggests that it helps the middle and upper classes even more. And it doesn't help those not working.)

The current proposal will certainly help the rich more than the poor, but it won't help the very rich. First, most of them are older, and don't have children under 18. Second, often both work and fall into roughly the same income tax bracket. Third, the rich already have a variety of income splitting techniques: they are often self-employed and can incorporate and pay out dividends to spouse or adult children. It is the middle income families who are stuck, and will be helped most by this measure.

Lastly, I agree with the consensus that broad based tax cuts are preferable to targeted ones. But that is an economist's calculation. If I were a politician, I would take the broad-based tax cut and divide it up into a variety of targeted tax cuts, even if the over all effect turns out to be the same. That way, I can sell each targeted cut to the target group and make them feel "special". People generally look at the goodies THEY will get, and ignore the cost of all the goodies being promised to others.

So perhaps this proposal isn't as irrational as it first appears.

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Re: Income Splitting

Post by Springbok »

Zipper wrote:The Zipper's #1 son. Three children, 13, 9, and 7.

He is a 42 year old well paid computer programmer.

Daughter-in-law is a stay at home mother.
Thinking back, we were in similar situation early on. Later my wife worked for our family business. We worked things out over the years, using the tax system of that time, in such a way that our earned incomes in retirement are almost equal. Income splitting is not needed or helpful.

Not complaining. It just seems that even in retirement, the benefits go to families with imbalance of income between spouses. IOW, the traditional family. No idea if that is the intent, or, more likely, which demographic buys the most votes.
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Re: Income Splitting

Post by ig17 »

Springbok wrote:It just seems that even in retirement, the benefits go to families with imbalance of income between spouses. IOW, the traditional family.
Which benefits?

Income splitting is not a benefit, if you compare two families with the same combined income: one balanced, the other imbalanced. Income splitting puts them on equal footing.
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Re: Income Splitting

Post by kombat »

ig17 wrote:Andrew Coyne:
There are, in other words, two kinds of fairness the tax system should aim to achieve: the vertical kind, which obliges us to tax households with different incomes at different rates, and the horizontal kind, which means taxing households with the same incomes at the same rates.
But Canada's income tax system isn't based on "households," it's based on individuals. Individuals pay taxes, not households. Coyne conveniently omits any mention of single-parent "households" (presumably because it doesn't support his argument).
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Re: Income Splitting

Post by kombat »

ig17 wrote:Income splitting is not a benefit, if you compare two families with the same combined income: one balanced, the other imbalanced. Income splitting puts them on equal footing.
Then what about two families both with imbalanced income, one with children under 18, one without. This policy puts them on unequal footing.

Is this about fairness, or is this about social engineering?
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