The campaign for the next Canadian federal election has started, informally kicked off by a ‘campaign style’ event in Vaughan, Ontario where Stephen Harper and Finance Minister Joe Oliver announced a slew of new family-oriented economic tax breaks, the most important of which being a recommitment to the 2011 election pledge of instituting a federal income splitting policy. The core tenet of income splitting involves allowing two-income households within different tax brackets to file taxes under the lower earner’s bracket in order to save money. The Conservatives commend this policy as a necessary step to ensure “tax fairness for families“, as put by Employment Minister Jason Kenney. However, an analytical examination of the numbers suggests that this policy will benefit only a small percentage of families, and systemically favours high-income Canadian families. Income splitting, while outwardly appealing to nuclear families which constitute the Conservative voter base, spends a staggering amount of government revenue through tax losses while marginalizing the families who need assistance most.
To start, it should be mentioned that the new proposed income splitting policy- referred to by some in the media as ‘income splitting lite’, reduces some of the concrete losses that would have been suffered by the Canadian budget balance by the 2011 election income splitting proposal. The tax cut in its original form would have garnered losses of 3 billion dollars, according to the Broadbent Institute and TD Economics, and it would further increase to 3.5 billion by 2019-2020. To alleviate these concerns, the new proposal has the benefits that can be accrued to families capped at $2000. However, this still makes the policy cost over 2 billion dollars annually by the estimates of the Conservative Party (whose comparatively sunny estimates on the previous proposal were quickly disputed by multiple policy think tanks).
Of course, government losses can be seen as justified if they reap significant rewards for the Canadian population at large. However, the inegalitarian spread of this tax benefit is structured in such a way that it would only benefit a possible 15% of all Canadian families, according to the C.D Howe Institute. This is due to the policy’s basic structure, which only accepts two-income households who lie in different tax brackets as those qualified to receive its savings. Even with the new policy’s cap on savings, the inherently exclusionary aspect of income splitting carries tremendous opportunity cost losses, as the billions of dollars in savings going towards largely high income earners could be better spent giving relief to those who need more assistance. Single parents, one of the most economically vulnerable groups in our society (and a group which constitutes approximately 28% of Canadian families) are ineligible to receive any kind of benefit to this proposal. It is also worth noting that the majority of single parents in Canada are women, who earn considerably less on average than their male counterparts- making them further in need of government help which instead is going to the 15%ers, affluent nuclear families under the Conservative base.
Even middle and lower class two-income households are largely left ignored by the basic parameters of income splitting. The program necessitates that in order to reap its rewards, the two earners within a family must be in different income brackets (that way taxes can be filed under the lower earner’s income bracket, saving the family money by avoiding having to pay the higher earner’s tax rate). With Canada’s broad tax brackets and the relative lack of income variation between breadwinners in the middle, and particularly the lower classes, most two-income families tend to have both earners working within the same tax bracket. Instead, the large majority of the benefits, according to Katherine Lahey, professor of tax law at Queen’s University, will go towards high income males who can easily support child care and their lower earning spouses without a 2000 dollar gift from the government.
With the next federal budget expected to produce a small surplus, few expenditures would be less efficient than giving a large portion of this money to high income families who do not need it. Income splitting has very apparent adverse social and economic effects- failing to relieve the families most vulnerable, and spending billions inefficiently on what could otherwise be used to implement sound social policies for marginalized groups. As family structures continue to evolve, policy needs to similarly adapt to suit new social dynamics. Instead we are presented with an archaic, inefficient, and blatantly politically self-serving policy proposal which further promotes class divisions- all for the purposes of allowing high income Canadians to circumvent and shirk their tax responsibilities owed to the rest of society for redistribution.
– Eli Vincent Zivot