Harper’s family tax cut isn’t great policy, or good politics

The way rules are written, the real winners will be lawyers and tax-professionals


 
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THE CANADIAN PRESS/Nathan Denette

THE CANADIAN PRESS/Nathan Denette

Today Prime Minister Stephen Harper announced a massive change to the way we assess and collect income tax in this country.  In 2011, the Conservative Party platform promised “the Family Tax Cut” that would give “spouses the choice to share up to $50,000 of their household income, for federal tax-purposes,” when the books were balanced, at a cost (they projected) of $625 million in this fiscal year and $2.5 billion in the next.  The platform argued income-splitting would “ensure that the federal income tax system respects and supports the choices that families make.”  Fun-fact: the only other federal party to promise income-splitting in 2011 was the Green Party.

Today’s announcement could have been much worse for provincial Finance Ministers. Through some fancy footwork, Finance officials have managed to shoehorn something that works kind of like income-splitting into a non-refundable tax-credit.  This means that provincial treasurers don’t have to follow suit.  Years ago provinces stopped calculating their tax rates as a percentage of federal taxes but they kept the federal definition of taxable income (line 260 of your tax return). This change doesn’t muck with that because it kicks in to reduce the federal taxes payable, not the income on which those taxes are calculated.

The plan the Prime Minister has unveiled still lets him use the “promise made, promise kept” rhetoric that is a mantra for governments seeking re-election.  But while consistency can be important, today’s announcement is not great policy. Over the coming months, I’m not sure this will prove to be good politics either.  Here’s why.

Although the wording of the Ways and Means Motion was almost impenetrable, it looks like the income-splitting will work a bit like this: First, taxpayers have to figure out if they meet the eligibility criteria (based on family status).  Next they work out the difference between their income and their spouses before other non-refundable credits.  Then they work out the difference in their federal taxes if they were to transfer up to $50,000 in income to the lower-income spouse.  Finally they claim the lesser of that and $2,000 from their federal income taxes.  Complicated stuff.  Really complicated.  Both spouses, by the way have to file a return.

For couples who are separated, divorced and/or recoupled and who share custody of children, who qualifies as “the couple with kids”? One child can’t be used to justify two couples splitting their incomes in two different homes–none of the other federal child credits work that way.  But the Notice of Ways and Means Motion just uses generic language about “normally resident,” leaving it up to interpretation according to individual circumstances. Don’t forget, when child support is being paid, the incomes between the custodial parents have already been “split,” just not through the tax system.  Family lawyers, sharpen your pencils.  This could get messy.

I think the real winners today could be lawyers and tax-professionals.

Related reading: John Geddes on how Harper makes his family tax platform harder to tear apart

Because the credit is non-refundable, it can’t actually get you a tax refund.  If, for example, after all your other deductions and exemptions you owed $1,800 in federal income tax, even a claim at the full meal deal value of $2,000 still just leads to $0 in federal taxes, not $200 back.  New non-refundable credits don’t do much for families who already have very low taxable incomes.

The announcement today also cancelled the Child Tax Credit (CTC), which is that $2,000 per child ($2,234 this year) non-refundable credit (so really only 15 per cent of that) that the same Conservative government had introduced in its first budget first budget, back in 2007. You have to have something in the order of six children to get a true $2,000 value out of that credit. Still, cancelling one non-refundable credit and introducing another means that the maximum $2,000 in income-splitting for a one-child family, is actually more like $1,670 net and that number goes down with more kids.  That CTC, by the way, could be claimed by single parents.  The proposed income-splitting can’t.

It sounds like couples can claim the new income-splitting credit, but they don’t have to. The United States gives married couples a similar choice on income-splitting by letting them chose between filing together or filing separately.  Looking at recent tax statistics from the Internal Revenue Service, about 68 million returns were filed jointly by couples (including 19 million single-earner couples) and another 69 million Americans filed separately.  Why do only some file jointly?  The answer: higher incomes.  Couples with one earner who opt to file a joint return have by far the highest average incomes at $65,000—compare that to average incomes of single filers at just $29,700.  When given choices, tax-payers walk with their feet and the ones in nicer loafers know to head straight for income-splitting.

Most people have presumed the imagined target audience for income-splitting are male-female couples with kids where one spouse is staying home while the other works full-time.  But, at the median, this family isn’t likely to get anything out of income-splitting. There are 672,000 male-female couples with kids where only the husband works.  They have a median income a little over $40,000. [i]  When gender roles reverse (another 254,000 families), female-breadwinning couples with kids have a median income even lower, at $33,000.  In neither case will the “average” of these family types get any real benefit from splitting when they’re already in the lowest bracket.  The additional money from the Universal Child Benefit and Childcare Expenses Deduction won’t change that.

As a feminist, I actually think it’s really important to recognize the value of all the unpaid production done in households. There’s an amazing scene in The Women’s Room [ii], when the main character presents her husband with a huge bill for the market value of all the services she provided as a stay-at-home spouse during their marriage: childcare, cleaning, personal shopping, gardening, personal chef and more.  If we were serious about recognizing the value of at-home unpaid production, we probably couldn’t afford it.  Today’s proposal on income-splitting says that all that work is worth no more than $7.69 per day.[iii] Worse, this proposal tells lower and modest-income couples with kids and single-parent families that all their unpaid production isn’t worth anything at all.

Jennifer Robson is an Assistant Professor at Kroeger College, Carleton University. Her teaching and research are in the areas of public policy and political management.  She lives in Ottawa with her partner and three kids.

[i] Author’s calculations based on CANSIM Table 205-0002)

[ii] French, M. (1977). The Women’s Room. Penguin Books.

[iii] $2,000 divided by 260 workdays in a year.


 

Harper’s family tax cut isn’t great policy, or good politics

  1. Strange that the author makes no mention of the other policy changes that were included in today’s announcement. Like increasing the UCCB to $160 from $100, and converting the child tax credit to a universal benefit of $60. Both these changes will benefit low income earners most of all since they are taxable benefits (as opposed to non-refundable credits) and the lower your income, the lower your tax rate. The lowest pay no tax at all. And of course, there was the increase in the child care deduction, which would benefit single parents as much as two-income couples.

    The concern about single parents is legit however. I would hope that this income splitting proposal will allow a single parent to claim one child as “spouse” for the purposes of income splitting. That’s how it’s done in other countries. Otherwise it will contain an inherent unfairness, and that will need to be fixed.

    • Pardon me for saying this, but the 60 bones extra(Harperbucks, now why does that sound familiar, gee, Kleinbucks) a month that Harper is handing out like confetti, is only beer and popcorn money, pardon me, but if I’m not sure, you might only get a case of beer out of it, it’s all according what part of the country you live in..

  2. With one stroke of the taxpayers pen, Harper gives every politician in the country from municipal, provincial, to federal a $2000.00 annual raise out of the taxpayers trough, just in time for the October 2015 election. Most politicians get over 6 figures a year anyway. Way da go Steve, take care of your own first. I wonder what the poor people are doing.

    • Carpet Bomber,

      You seem to be forgetting an important fact: The money is not being TAKEN FROM GOVERNMENT….it is being returned to those who have actually worked for, and earned it. Why do you have such a problem with people being “allowed” to keep their own money?

      Or are you just ticked that the $60 per month being returned to those who earned it, is $60 that won’t be going to folks like you?

      • That’s the problem with your idiot ideology James, like I said in other posts, you and your guys(cons) are a ‘ Live Free or Die ‘ government. You guys hate infrastructure, let the HOCs, 24 Sussex, Stornoway, roads, Highways, clean water, fall apart and fall around every ones heads and hope no one notices. How do you expect infrastructure to be replaced? Will Harperbucks pay for that, or will we be in bigger dung if he gets re-elected? 60 bones is only worth enough money for a family of 4 to have a night out at Mickey Ds while the rich eat Fillet at the Ritz. You sure your not wearing short pants, because it seems like their up around your ears, because you guys never listen to reality, you don’t even understand what the meaning of the word is, that’s all you know and your con government is how to suck the milk through the fence, never investing into a cow.

        • Carpet Bomber,

          I have no problem paying taxes for infrastructrure, or other needed programs to keep the country running.

          I have a problem with paying taxes when I see it going to so many people who neither earn, nor deserve their freebies. I don’t think a healthy person should be ALLOWED to collect welfare if they are able to work and there are jobs available. I don’t think I should pay for the “free” daycare of Quebecers who earn six figures. I dont’ think we should have to pay for the pet projects of activists….etc…etc…

          You can whine all you want Carpet Bomber, but it is clear that you don’t really care about investments in infrastructure, insomuch as you are concerned that allowing people to keep their own money, means less tax payers dollars available to invest in “carpert bomber”

          When you finally get a job and start paying your own way….you’ll see what I mean.

  3. These puny, little breadcrumbs, and many more things he could’ve, and should’ve done years ago.
    So why now ?, oh ya, that’s becuase it’s less than a year before Oct/2015, so his PR, and other Harpocrites, says ya, throw some more breadcrumbs out there to pick up votes, but afterwards, it’ll be right back to “let them eat cake”.

    • Rickster…

      It is not a “let them eat cake” scenario….it is a “Let them keep more of their own cake” scenario.

      That being said, I do agree the changes to taxes could have been more efficient that what is being proposed. I would be more in favour of an income tax cut across the board. That way, anyone who actually works, pays taxes, and makes a contribution to society would benefit.

      • Hey James BeanCounter, read Carpet Bomber’s reply to you above, it would have been similar to mine anyway.

        • Rickster,

          When you start using Carpet Bomber as a reference….you have truly fallen over the edge. This puts you in the same category as EmilyOne.

          As for BEAN COUNTERS (and yes I am in the Finance field)…….it is not counting the beans that is the important part of the economy…..it is making sure there enough beans produced to keep the economy functioning. And here’s a novel thought; if you let people keep their own beans….they tend to spend it in the most effective manner. Far more effectively than any Government will ever be able to do.

          Would you give your paycheque willingly to someone and ask them to take care of your finances, and see to your needs? Or would you be in a better position to make those decisions yourself?

          That’s what folks don’t seem to understand about taxes and Government.

          • We can not have NO Taxes James.
            I didn’t know You and Billy Boob are roomates.

            But I do know where my salary goes, but what I don’t control is what is done with all the taxes taken from it, or anything else, since “everything” is “taxed” here nowadays. However, controlling how, and where our taxes go back into our system, (instead of selfishly to ourselves), is an interesting position that every canadian should have more voting power on.
            That said, our only control is primarily by voting said Gov’t in, or out.
            -the gov’t is NOT a Corp, it doesn’t need to run in the “black”.

            We do, however, expect our Gov’t to manage, regulate, …, our taxdollars, enforce a “fair” tax system, so as to be able to put that into more better systems, infrastructures, services, health, education,… unfortunately, with this gov’t it’s an “un-balanced” Tax grabbing system, and that’s an understatement.

            Your scenario of keep more money, and much less Taxes are fine, so long as we ALL have +$50K lying around for that lower-back surgery, …, so long as we all have hundreds-of-thousands of dollars to quality-educate our teens and young-adults, or look after our very young, or the very aged, sick, disabled,…, who can NOT look after themselves anymore, …, and/or many other examples.
            …and, Don’t look to any “company/corporate” (health) plans,…, either -we’ll all get ripped off by every Con, and Schyster around -just look at Obummer-Care.

            I am however, all onboard for taxing, much more heavily, “every” gov’t worker, from the PM down to the data-entry clerks,… let them pay even more to the taxpayers that gave them their Jobs, … it’s only “fair” right ?

            It always easy for the small percentage of the ones, who claim they don’t need health-care, cheaper eductaion, better infrastructure, services,…, to cry foul, BUT, when they do need it, they scream and whine the most, and want it for nothing !
            Your ideal system James, therefore, would result in nothing but kaos, although I know you don’t believe it.

          • Rickster displayed his ignorance of anything “economic” with the following dirge:

            “However, controlling how, and where our taxes go back into our system, (instead of selfishly to ourselves), is an interesting position that every canadian should have more voting power on.”

            Rickster…..the fact you think people are “selfish” for wanting to keep their own money puts you squarely in the NDP / Socialist camp. Not really a surprise. As for Canadian’s voting power….we have that. Currently, we have a Government that Canadians voted for. I don’t think most of them would willingly want to pay more to Governement. If they did….we’d have an NDP Government. If they wanted more money stolen….they’d have a Liberal Governemnt. Right now, people apparently believe they should be allowed to keep more of what they earn.

            You go on:

            ” That said, our only control is primarily by voting said Gov’t in, or out.
            -the gov’t is NOT a Corp, it doesn’t need to run in the “black”.

            Actually, ricky……a country DOES need to run in the “black” as if it repeatedly spends more than it receives in revenue…you have only two options. Fail as a country, (as per Greece) or raise taxes. You don’t seem to mind high taxes, but that is no doubt due to the probability that you don’t pay them.

            Further, you write:
            “Your scenario of keep more money, and much less Taxes are fine, so long as we ALL have +$50K lying around for that lower-back surgery, …, so long as we all have hundreds-of-thousands of dollars to quality-educate our teens and young-adults, or look after our very young, or the very aged, sick, disabled,…, who can NOT look after themselves anymore”

            I have no problem paying for health care to those who are in medical distress, or require life saving medicines. I do have a problem paying for someone who is too irresponsible to practice birth control, or is not sure of what their Gender assignement is….and expects the rest of us to pay for unnnecessary surgery. I have no problem looking after those who cannot look after themselves, unless of course it is those folks who prefer to shoot heroin into their veins instead of being productive members of society. I have no problem paying taxes to ensure our children are educated, but I do have a problem paying for an education that is more akin to indoctrination. (see basically any curriculum provided by the TDSB)

            you go on:

            “I am however, all onboard for taxing, much more heavily, “every” gov’t worker, from the PM down to the data-entry clerks,… let them pay even more to the taxpayers that gave them their Jobs, … it’s only “fair” right ?”

            I think the tax rates should be flat across the board. That way, no matter what you earn (up to a basic exemption of course for low income earners) you pay your share fairly. We need Government workers, but I do question the number currently employed. I don’t think we really need as many as we have now. Start by firing all the “diversity” workers, the “equity workers” and the other useless departments that are meant to make people “feel good” as opposed to actually doing any good.

            Finally, you opine:
            “Your ideal system James, therefore, would result in nothing but kaos, although I know you don’t believe it.”

            Actually, my ideal system would involve putting taxes in appropriate categories, and list them for taxpayers to see. If one area (ie. Infrastructure) requires more funding, then raise THAT type of tax in that category. Once the need has been met, lower this category of taxes to enable upkeep. Same applies to Health care. Show folks how much we spend on health care, and don’t just shove the money in a common pot of cash. Once people realize how much of their paycheque is going to health care……they’ll start to ask questions about how much more efficient it could be to reduce costs.

            As for your last comment…….I’ll not dwell on your spelling of the word CHAOS, and assume that this is one of the factors which have resulted in the probability that you don’t pay much in the way of taxes. My ideal tax system would not be perfect (and none would be) but it would be clear to the people paying the taxes who would then demand the appropriate actions to ensure the money is spent on their behalf more wisely. Remember Ricky……only the person who earns the money knows best how it should be spent. If you rely on Government to look after you, you will be sadly disappointed.

  4. This is an interesting move by Harper.

    All of the speculation around income splitting was that it was going to be a tax deduction for the higher earning spouse. That’s the only way the cost estimates in the billion made any sense.

    Promise made. Promise kept.

    Complaining that it is not enough money? Every little bit helps and people accept that when things are going well. They are for some. Not for everybody.

    The rest of the piece simply proves why you shouldn’t read professors in public policy and political management when looking for an explanation of a tax bill.

  5. Great move by Harper. It’s not complicated at all and besides taxes are all calculated with computers these days.

    Despite what the haters say, people actually like paying less in taxes.

    • Oh I think it’s common knowledge that people would like there to be no taxes at all.

      Of course that would mean there are no roads, no hospitals, no schools, no fire or police depts, no pensions…..

      There is no such thing as a free lunch AA.

      • Yes lets keep those things. I’ve never heard anyone ever object to the using of tax dollars to build roads or to employ police.

        But let’s abolish 75% of the public service and cut the salary of the other 25% by half. I’ve worked there. These people make huge salaries and have awesome benefits, yet they are lazy and incompetent and most have useless make-work jobs nobody cares about.

        • Well see…the police ARE the public service, and they want pay and pensions the same as doctors and nurses and all those other public servants.

          You got fired did you?

      • Emily….

        I’m certain you have been getting “free lunches” for quite some time now.

        Now why don’t you just thank me for providing them for you….and leave it at that.

  6. “Today’s proposal on income-splitting says that all that work is worth no more than $7.69 per day.[iii] Worse, this proposal tells lower and modest-income couples with kids and single-parent families that all their unpaid production isn’t worth anything at all.”

    Actually, it’s the opposite, by giving a tax credit for it, the government is saying it has negative value, since it only taxes things of value. If the government was saying it had value, then they would tax stay at home parents for the market value of the services they are rendering.

  7. All hail Alexander of Kandahar. The doctor-lawyer-manager cohort
    now have a few more bucks with which to underpay their incoming
    Filipino nannies.

  8. If the writer does value unpaid work, how would she like that to be valued money wise? Without income splitting the lower earner is treated by definition as dependent. With income splitting the two parties are counted as equals, and interdependent. It is true that families will have to do some math to figure out how much money to transfer to keep them each in the lowest tax brackets they can, but hey, most people can do some math. I would prefer full income splitting no caps, and then the benefit would be for all. I would prefer it be available for single parents, as in France, where the parent’s income could be partly attributed to the oldest child, who then pays low or no tax on it, and the parent then has lower income and pays lower tax. We aren ‘t there yet but we’re on the way to a fairer system. The one we had before was very biased and one key way was actually to force single parents to leave their kids, telling them they had no choice but to earn. With the enhanced per child funding across the board all parents have more choices about care styles. How can having more choices be a bad thing?

  9. Let’s just correct one matter. The CTC was introduced in the 2007 budget, but this was the Harper government’s second, not it’s first, budget.

  10. MAYBE it is time for the Canadian government to change from the ‘trickle down’ theory to a ‘trickle up’ by reforming the tax codes completely…..set the basic personal credit on the income tax forms at $24,000 so that anyone making less than $24,000/year gets to keep and spend it all BUT everyone benefits from it no matter how much they make.

  11. The critics of this blog seem to have missed an important item…Canada needs higher reproductive rates to blend with immigration to make our future social programs sustainable. One way is make certain that families have more disposable income to feed, clothe and educate their kids. This is not about single or retired folk. IMHO.

    • Valid Point, but a little too late I’m afraid.

      Canada’s birth rate has been declining for years, and we do not have a “replacement” birth rate; which requires us to bring in immigrants to pay for folks as they get older.

      Just wait until the younger generation has to pay 60% of their paycheque to support all of us old buggers. Pretty sure they won’t put up with it forever.

      If anyone over 40 hasn’t gotten at least $250,000 stocked away for retirment….you’ll be hurting in your 60’s.

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