Canada and Income Splitting
What is the impact of the proposed income splitting tax break?
After reading the CCPA report on the effects of income splitting and wanted to field some thoughts:
The CCPA frames income splitting as increasing inequality in Canada, using this frame lets work through the proposal. Does the proposed income splitting have any safe guards against this? and what is the social impact? To answer the first question yes, there are safe guards they are; a) a maximum of 50k can be transferred and b) only couples with children under the age of 18 will be eligible.
So with these “safe guards” or rules what is the maximum saving expected if some one could off load the entire 50k to a non earning spouse ? about 6k a year for a maximum of 18 years. 6k a year isn't something that is going to shift the balance of income inequality but it might be a sum that helps a single earning family. So this is a tax break that will stop penalizing stay at home spouses, benefit 14% of families in some way for an average of $1,300/ year(which can be viewed as small or large) and benefits those in the top tax bracket the most. The last part is particularly interesting as it is one of the most significant points being talked about in the media (CBC and Globe and Mail)as some one making ~130 k a year is considered at the top income bracket but after taxes they bring home less than a couple each earning ~60k a year, who we then call middle class, neither of which is a significant sum when working/ living in a metropolitan area such as Toronto, Vancouver, Montreal and such. As this tax break is about families it would be of been more constructive to speak about household income [ on a side note check out this income calculator to see where you stand in the income inequality crisis].
Most of the rhetoric around the topic isn't about the program but surrounds income inequality (that wont be affected in a meaningful way by this program) and the need to deal with other issues such as supporting single parents, poverty and day care costs. While the importance of addressing and relieving issues such as day care costs, single parent support feasibility and critically poverty should not in anyway be undermined I don't believe it to be an appropriate tool to criticize legislation.
