The new study on income-splitting for families shows how different family types can achieve tax fairness so that those with dual-income earners or a single-income will be on a level playing field and pay the same amount of tax.
Currently, income splitting is only available to seniors, who can split 50 per cent of pension income with a spouse or common-law partner.
The School of Public Policy of the University of Calgary released its study “No More Second-Class Taxpayers: How income-plitting can bring fairness to Canada’s single-income families” April 29 at an event hosted by the Institute of Marriage and Family Canada (IMFC), Conservative MP Stella Ambler and Liberal MP John MacKay.
“Right now we have a tax system that is discriminating against single-earner families,” said one of the study’s authors, economist Jack Mintz. “I’m a great believer in neutrality in the tax system and letting people make decisions for economic reasons without letting the tax system interfere.”
The Conservatives promised income-splitting for families with children in the 2011 election, but only after the budget is balanced, projected to be some time after 2014-2015. The study points out the details of how this would be done have not been worked out. Mintz said it has been estimated income-splitting would cost from $2.5 billion to $2.7 billion a year.
Under the present system, a single-earner family earning $70,000 pays more than $2,000, or about 30 per cent more, in income taxes than a dual-earner family earning the same amount, the study shows.
Ontario single-earner families fare the worst, the study shows. The “family tax plan” proposed by the Tories would allow families with one or more dependent children to transfer as much as $50,000 to a stay-at-home parent.
The study addresses some common criticisms of income-splitting, Mintz said. Under income-splitting, the tax advantages shift to the single-earner family. It also provides a disincentive for a non-earning spouse to get into the work force.
These problems could be rectified by placing some restrictions on income-splitting, said Mintz.
The study’s proposed solution could achieve both tax fairness and reduce the overall cost to government, Mintz said.
IMFC executive director Andrea Mrozek said the non-partisan think tank has been advocating income-splitting for families since 2008.
“It’s a proposal we wish every party on the Hill would adopt,” she said.
Conservative MP Pierre Poilievre asked if such a policy might encourage more families to have a parent stay at home with children. He noted studies show the first choice of most families is to have a parent stay home to look after children, with institutional day care way down the list. He asked if the tax changes might free up spaces for those families that really need institutional day care.
Mintz said the tax system should impose similar tax burdens for differing choices, so it “does not interfere with the decisions made by individuals.” Though the study examined the costs of day care for families, he said he did not know whether income-splitting would encourage more families to have a parent stay home.