Tuesday, November 21, 2006

Split The Difference

One of the most comon complaints against the income tax system in Canada is that it penalizes families where the wife stays at home. The working husband ends up carrying all of the tax burden, while two working spouses do not.

That could soon change:

The Conservative government is looking at a radical restructuring of the tax system that would allow couples to reduce what they pay by averaging out their income, says a government source.

But introducing income splitting — something Finance Minister Jim Flaherty could touch on as early as Thursday when he delivers his annual economic update — is likely to set off sharp criticism from groups that consider it unfair to single Canadians and a disincentive to women working outside the home.

Critics say income splitting — transferring income to the lower-earning partner for tax purposes — would alter the fundamental nature of the tax system, making the family a basic unit and the system less progressive.


Income splitting would be a tax break for many couples, with the lion's share of benefits going to those in which one spouse is a high-income earner and the other does not work outside the home.

Under current tax law, a family in which one spouse works, earning $80,000 a year, and the other spouse has no income will pay $12,460 in federal income tax. Under income splitting, the couple would pay a combined total of $8,940, a saving of $3,520, according to calculations by the Canadian Taxpayers Federation.

A family in which one person earns $60,000 and the spouse earns $20,000 currently pays total federal income taxes of $10,280. Under income splitting, that family would pay a total of $8,940, a saving of $1,340.

A family with two partners earning $40,000 each pays a combined federal income tax of $8,940. There would be no change under income splitting.

Income splitting would be popular with many families, particularly social conservatives who form the Harper government's prime supporters.

Liberal social engineers will be out attacking income splitting and joint filing in full force. They know from experience that changes in the law--from easy divorce to homosexual "marriage"--change attitudes and practices very quickly.

Anything that might detract from their aim of the eventual abolition of the family is a threat to their power. Income splitting will encourage one thing they don't want--recognition of the contributions of homemakers to society.

Income splitting has the potential to break the cycle of increasing taxation forcing women to work outside the home, thus increasing the tax revenue that finances programs which provide further incentive to do so.

And that is something the elites cannot allow to happen.

The government could easily fall over this issue alone in a budget.

And it would be one of the hottest election issues.

Source: Toronto Star


John M Reynolds said...

I found it funny how the critics used the word progressive. You can't have progress without a future. Without kids, there is no future.

Charging everyone the same tax rate is a nice idea. That is what this income splitting would do. No matter what each person in the family earns, all families earning the same total amount of 80000 get a federal tax rate of 8940/80000 = 11%. How is that nor fair?

William E. Demers said...

Income splitting is a great idea and it should apply to all Canadians, not just seniors.

Joanne (True Blue) said...

I love this idea and have already sent Jim Flaherty a letter saying so.