A new report by the Institute of Marriage and Family Canada debunks myths surrounding income splitting. CNS photo/Debbie Hill

IMFC debunks myths on income splitting

By 
  • June 30, 2014

OTTAWA - The Institute of Marriage and Family Canada (IMFC) has released a study debunking myths about income splitting as a way to provide tax relief for Canadian families.

Income splitting became a hot issue when the federal budget was introduced this year because the Conservatives had promised this form of tax relief for families once the federal budget is balanced. At the time, the late Finance Minister Jim Flaherty predicted a balanced budget in 2015.

The IMFC noted Flaherty “voiced doubts” about the policy, though other cabinet ministers and Prime Minister Stephen Harper eventually upheld the promise. 

“What followed was a smear campaign of the policy, led by a rather odd alliance of political and interest groups,” said the IMFC.

The think tank devoted to policy research on marriage and family pointed out income splitting — allowing a higher-income earner to share income with a non-working or lower-income spouse thus qualifying for a lower tax bracket — is not new, and that it was once Liberal policy. At present, two-earner families that earn that same as a single-earner family pay substantially less in taxes — in some cases as much as $4,000 a year. 

Among the myths the IMFC challenged in its paper “Busting Income Splitting Myths” by several authors are: Canadians don’t want it because it doesn’t help many families; it is right-wing policy; it offers no real tax savings; it “denigrates” women and removes choice to work; it fails to help the poor; it would pull people out of the work force; income splitting is the only way to address tax fairness; it’s a tax break for the rich; and it creates greater inequity.

A 2014 Abacus poll showed 57 per cent of Canadians support income splitting, the IMFC reported. The breakdown along party lines: Conservatives 65 per cent; Liberals 54 per cent; and NDP 55 per cent.

Income splitting will help 46 per cent of Canadian families with children under 18, the IMFC said, noting Canadians support it even if they personally do not believe they will benefit from it.

Opposition to income splitting comes mainly from two groups that are otherwise in opposition and on the right and the left: corporate interests wanting an available work force and feminists, many of whom see work in the home raising children as “oppressive,” wrote Paul Malvern. The roots of this debate go back to that of a “family wage,” the income level needed to support a family, he said.

IMFC executive director Andrea Mrozek wrote that some feminists see the tax savings as a bribe to women to stay at home rather than participate in the work force. 

“Lower taxes mean more money in a family’s pocket,” Mrozek wrote. “More money means greater freedom.

“The tax code should not influence parenting choices by taxing families with the same income differently, as it does now. This discrimination against single-earner families in Canada’s tax code must end.”

Lawrence Solomon wrote poor households are “overwhelmingly dominated by the unmarried” yet tax policies can in some instances discourage people from getting married. 

“Because incentives do matter, many of those now involuntarily stuck in that single household demographic would migrate to married status and then — as research has shown — would, through marriage, have the moorings that lead to future prosperity."

As for whether income splitting would cause large numbers of people to leave the work force, economist William Watson wrote that while income splitting would provide incentives for one spouse to stay home with children, he guessed that in the majority of cases it would not.

Derek Rogusky challenged the myth that only income splitting would bring tax fairness by pointing out a reform of the tax system to make for a flat tax rate would have the same effect.

Income splitting is not a “tax break for the rich,” wrote Mrozek, but a “policy to correct an inequity in the current tax system that treats households with similar income differently.”

“Critics don’t like it because it means less tax income for government and more income for families,” she said. She also challenged the myth income splitting would worsen income inequality, by pointing out it rectifies an existing inequality.

Many critics of the policy support institutionalized day care instead of tax breaks for family, Mrozek wrote. She called the idea of a national day care system a form of “soft paternalism” that “takes money away from parents and then proceeds to tell them how to care for their kids.”

An “animus against caregivers of all kinds” underlies some opposition to income splitting, she wrote. 

“People who work less outside the home in order to care for either children or aging parents deserve recognition and support. Taking the value of caring for others and trashing it as irrelevant or only for certain families deemed ‘traditional’ ought to be recognized as the mean-spirited discrimination that it is,” she said.

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