In response to this blog post on income-splitting, MP Scott Brison, the Liberal party’s finance critic, wrote this letter (my brief reaction is below):
The headline of John Geddes’s latest piece (“Why income-splitting helps all but the poorest Canadians”) ignores basic facts about the Conservatives’ $2-billion income-splitting plan. It even contradicts many of the points made in that article.
As has been pointed out elsewhere, income-splitting provides no benefit whatsoever to the majority of Canadian families with children. It does nothing to help single parents or very low-income families. Instead, the Conservatives’ income-splitting plan focuses on relatively wealthier households that fit a certain mold.
The Parliamentary Budget Officer’s report on income-splitting shows that higher-income families are far more likely to qualify for benefits than their lower-income counterparts. Families in the highest quintile are, in fact, most likely to qualify for benefits – while the chances of a family in the bottom quintile qualifying “are near zero.” Furthermore, the figures cited in Geddes’s piece make it clear that average benefits under income-splitting increase with family income. Families earning $180,000 or more take home the highest average benefit, yet these are precisely the people who need help the least.
For the minority of families that do qualify for income-splitting, the benefit can be confusing and unreliable. As Kevin Milligan points out, calculating the tax credit is an 85-step process. Qualifying for it one year doesn’t mean you’ll get it the next – the benefit can vanish unexpectedly when circumstances change. For example, a family can become disqualified when the primary earner loses their job or sees their pay drop.
Not only is income-splitting unfair, but the PBO has shown that it will actually weaken Canada’s economic growth rather than strengthen it. He estimates that it will lead to the equivalent of 7,000 fewer full-time jobs due to lower marginal effective wages created by income-splitting.
Fairness means ensuring that all Canadian families have a real chance at success. Liberals have been clear that we would reverse Prime Minister Stephen Harper’s unfair income-splitting for the wealthy and use this money to strengthen the heart of our economy, the middle class.
Hon. Scott Brison, P.C., M.P.
Liberal Party of Canada Finance Critic
My brief response:
Scott Brison is right that the original headline on the piece was sloppy; it has been changed. On his points about lower-income families not benefiting enough from income-splitting to justify the policy, I agree. In fact, that was my emphatic conclusion in the blog post he’s writing about. I don’t doubt University of British Columbia economist Kevin Milligan’s analysis of the complexity of the “Family Tax Cut” income-splitting model. Finally, I’m interested that Brison doesn’t mention at all the main new information I reported on—the Parliamentary Budget Officer’s projections showing that most of the gains from income-splitting will, contrary to Liberal claims, go to families with incomes below the richest 15 per cent.