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Thursday, September 27, 2007
It’s Time For Income Splitting
Canadians are an overtaxed people and are in need of some relief on that front. I’ve also long been in favour of allowing Canadian couples to split their incomes for income tax purposes. Unfortunately, reports earlier this year indicated there was not enough room in the federal budget to comfortably allow it. However, given today’s announcement of an expected federal surplus of $14 Billion, the time has come to finally allow income splitting.
Our personal spending power is largely driven by our family income, not our individual income. So why do we pay tax based largely on our individual income? Why should a family where each spouse earns $60K per year, pay less income tax than a family where one spouse earns $100K and the other earns $20K?
With a surplus (also known as over-taxation) of this magnitude, Canadians must receive a tax cut. Therefore, why not make income splitting a large part of that cut? The recent plan to allow seniors to split pension income was a good start, but it’s time to extend that benefit to all Canadians.
Allowing income splitting would be the best way for Stephen Harper to show that he supports families and to show that he supports returning hard-earned tax dollars to the working people that provided them in the first place.
The introduction of income splitting for Canadians should be a centerpiece of the Conservative’s upcoming throne speech.
Cross-posted at www.exactlyright.ca.
Posted by Dave Hodson on September 27, 2007 | Permalink
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Comments
Spot on, Dave. If the Tories do not introduce some lowering of the personal income tax rates - and I favour income splitting as well - then they will have really missed the boat.
Posted by: JK | 2007-09-27 2:52:01 PM
A must-do. If society wants to preserve the family unit, it is essential that this be done.
End of story.
Posted by: atric | 2007-09-27 3:23:52 PM
I must have missed something for I understood last April that this was already approved and would take effect for the 2007 tax year. What happened here?
Posted by: Alain | 2007-09-27 3:37:38 PM
Alain, the splitting that was approved last April applies only to seniors and pension income. There is currently no provision in the Income Tax Act to allow general income splitting for couples in Canada. My hope is that next year they will make this possible.
Posted by: Dave Hodson | 2007-09-27 3:42:21 PM
Dave:
Correct me if I am wrong, but isn't income -splitting allowed in the US? And if so, another argument for implementing it is to make our tax system more competitive with the US's.
Such a change is un-equalled in its ability to attract voters, particularly blue-collar and middle-class suburban females - a key demographic if the CP is going to get a majority.
Posted by: Gord Tulk | 2007-09-27 3:50:41 PM
Thanks Dave. I see how I got it wrong, but it does not make sense to me that it would not apply across the board. Silly me expecting government policies to make sense.
Posted by: Alain | 2007-09-27 4:00:17 PM
NO INCOME SPLITTING,please. Why not just lower income taxes for all workers. I am single and rarely recieve an income tax break.It seems that every time something is done it is targetted to families and/or children.Why are us single people always forgotten,we pay the most and use the least.....Give us a break for a change.
Posted by: wallyj | 2007-09-27 5:33:54 PM
Thanks Dave,
We need to keep pushing for Income Splitting. We advocate for this at www.careofthechild.com and we need members to fight for it.
Posted by: Sara | 2007-09-27 5:35:38 PM
Wallyj, i agree with you.
Whats wrong with a good old personal tax cut?
If income splitting happens, we are inviting another beaurocracy to manage it.
Tax cut does the same thing and does not add bodies to the civil service.
Income splitting is disriminatory.
Posted by: Lee | 2007-09-27 6:41:09 PM
Lee,
I don't see how income splitting will increase the bureaucracy. Couples returns are already linked in the tax system, as there are tax credits and other information that are shared between the 2 tax returns. An adjustment to the tax rate based on the average income of the 2 spouses would be a simple computer formula in the CRA systems. It's certainly no more complicated than most other items currently on the tax return.
I also disagree that income splitting is discriminatory. In fact, I think it's discriminatory not to income split.
The current progressive income tax system is built on a basic premise of charging progressively higher tax rates as income rises, to reflect ones increasing ability to pay. However, one's ability to pay income tax is more a function of combined family income, not individual income.
All else being equal, 2 families earning $100K per year have the same ability to pay income tax. However, if one family is comprised of each spouce earning $50K, and the other family is $90K and $10K respectively, the latter family will pay substantially more income tax.
Personally, I'd prefer that we just move toward a flat tax, since I believe our progressive tax system is far too progressive. Unfortunately, I don't see that happening.
Posted by: Dave Hodson | 2007-09-27 7:52:20 PM
Wally,
I disagree with your statement that single people pay the most and use the least.
Married and single people each pay taxes based on the same system. What you pay is based on your income, and you don't pay more just because you're single.
As for single people using the least, I'm not sure about that either. Many of the services provided through income tax have nothing to do with your marital status--national defense, transportation, police, business services, health care, etc. Hell, there are many government services that most of us will never use.
But even if some people do use more government services than others, our current system is not built on the premise of charging tax according to the volume of services you consume. If it was, we'd have smaller government and more user pay services.
That, however, is an entirely different topic for a different discussion.
Posted by: Dave Hodson | 2007-09-27 8:04:13 PM
Dave ~
Single people without children pay heavily into an education system that they have no need of.
The rest of your comment is on point.
Posted by: obc | 2007-09-27 8:07:37 PM
Single people subsidize your children. When you go to a park with your family of four and come across a single person enjoying the sunshine,keep in mind that he/she has paid many times the taxes for this benefit as the four of you.The guy next to me at work earns the same as I do. We are taxed at about the same rate. But,he has deductions coming out of the ying yang and ends up paying about two-thirds of what I do at year end.And with his contribution 4 people recieve health care,infrastructure use,policing,and every benefit and more that I recieve. Also,because benefits are factored into contract talks,his family of four are lowering my wage yet again. So,I say to hell with income splitting,give us non-breeders a break for a change.
Posted by: wallyj | 2007-09-27 9:03:48 PM
And that is probably why you can't swing a cat in a gov't operation without hitting a sexually-challenged person.It isn't about employment equity,it is about employer economics.
Posted by: wallyj | 2007-09-27 9:09:45 PM
...also regarding single people getting screwed, within a marriage you have an option to put the RRSP on the spouse who's income is higher/lower than yours.
Not to mention it is cheaper to live as two than one. Buying power for one.
I lived single long enough to appreciate the difference married life and financial benefits I get from it.
Yep and those other benefits too...
Posted by: tomax7 | 2007-09-27 9:51:19 PM
I was a co-host of a national conference on income splitting last January on Parliament Hill. We had economists, lawyers, caregivers and tax experts speak about the issue and the website may be of use as you look into these things. I am heartily in favor of income splitting because for me it is a key way to value those whose work is lower paid or unpaid but still very important work - which is often the situation for women.
Posted by: Beverley Smith | 2007-09-28 6:28:26 AM
I was a co-host of a national conference on income splitting last January on Parliament Hill. We had economists, lawyers, caregivers and tax experts speak about the issue and the website may be of use as you look into these things. I am heartily in favor of income splitting because for me it is a key way to value those whose work is lower paid or unpaid but still very important work - which is often the situation for women.
The website is
http://sharingincome.tripod.com
Posted by: Beverley Smith | 2007-09-28 6:28:41 AM
I was a co-host of a national conference on income splitting last January on Parliament Hill. We had economists, lawyers, caregivers and tax experts speak about the issue and the website may be of use as you look into these things. I am heartily in favor of income splitting because for me it is a key way to value those whose work is lower paid or unpaid but still very important work - which is often the situation for women.
The website is
http://sharingincome.tripod.com
Posted by: Beverley Smith | 2007-09-28 6:28:53 AM
The government pays us due to our family situation but they tax us individually. To not income split is discriminatory or they can pay us as individuals.
Posted by: Sara Landriault | 2007-09-28 11:14:51 AM
It will never happen.
Just look at Dave's original example. As soon as the Moan Stream Media looks at this example, then we'll see a plethora of stories from Jack! and his fellow travellers decrying this as the Conservatives giving tax breaks to their rich friends. After all, in Dave's example, the tax would drop for the individual earning $100,000 in the familiy situation, compared to the individuals earning $60,000 each.
It does not matter that this is simply introducing an element of equibility into the whole process (a leveling of the playing field, as Jack! might say under other circumstances), the MSM would use it as yet another tool to smack the Harper government around.
Sadly.
Posted by: Another Sean | 2007-09-28 12:19:43 PM
Well said Sara. There is another aspect that often single people fail to recognise and that children are the future work force and contributors to the programs that will benefit everyone (even those without children) later in life.
The present system is anti-family and discriminatory towards married couples with children and an encouragement to live common law. Furthermore the present system does not even allow reasonable deductions for children and a stay-at-home spouse.
Posted by: Alain | 2007-09-28 2:31:15 PM
And we should also make in addition, that they should remove the capital gains tax AND also stop taxing people who own shares in corporations. Corporations are already taxed to the max as it is, which means taxing the shareholders, who are the owners, is double taxation.
And this death fee business is nothing but a means of taxing someone who cannot stand up for him or herself--while making the descendents pay for their relatives good lives. It is unfair, because people who spend all their money on junk and have nothing, are not treated as such!
Posted by: Lady | 2007-09-28 3:05:55 PM
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