More on Income splitting

April 1, 2011

Tories' income splitting another nail in tax coffin

By JEFFREY SIMPSON
From Friday's Globe and Mail

The Conservatives are all about targeting the 'middle-class family,' whatever the economic consequences. Sound policy once again flies out the window in favour of political expediency

Some day, presumably years from now, a federal government will clean up some of the damage the Harper Conservatives have done to our tax system.

Ideally, a tax system should be simple, fair and progressive. It should encourage savings and investment, and try to treat everyone in the same income bracket in the same fashion.

The Conservatives have made some moves that accommodate these principles, as in creating the Tax-Free Savings Account, available to all and designed to encourage savings. But their philosophy of using the tax system to achieve social objectives and, most important, their own political objectives, has left the system pockmarked with all sorts of inefficiencies that some later government will have to eliminate.

Essentially, the Conservatives have used the tax system to lower taxes in the least effective way possible. They have targeted specific groups they want to attract politically, then offer tax advantages.

The worst offence, of course, was cutting the GST by two points at a cost of $12-billion instead of reducing personal and corporate income taxes that would have stimulated investment and savings. But, for entirely political reasons, the Conservatives chose the GST cut because it was more visible and, they hoped, politically attractive.

The latest offence is the promise to allow income splitting of up to $50,000 for families with children. This is supposed to happen in four years when the deficit is eliminated (most objective observers believe deficit elimination will take longer.) Since the income scheme will cost at least $2.5-billion, it will erode the surplus Ottawa needs to start paying down debt incurred in the recession, but, hey, who cares about that in this campaign? Moreover, this old Reform Party idea was rejected by a parliamentary committee in 1998 as unfair, regressive and costly ($4-billion). The Department of Finance also studied the idea and thoroughly debunked it, as it would presumably do today.

Income splitting does nothing for single parents or the poor. It assists wealthier families with one person working, since they can save about $6,000. What looks on the surface to be fair is actually a regressive tax policy that treats taxpayers differently, helping the rich more than the poor and one kind of family more than another - which is why very few Western industrialized countries allow this policy.

Income splitting as proposed by the Conservatives is also a dumb policy because it favours women staying at home rather than encouraging those who want to join the work force at a time when Canada needs more people working to support the increasing number of retirees.

But the Conservatives are all about targeting the "middle-class family," whatever the economic consequences. Sound policy once again flies out the window in favour of political expediency.

The same thing happened since the first Conservative election, with targeted tax credits for income splitting for seniors ($920-million), transit users ($145-million), apprentices' tools, truckers' lunches, child-care payments ($1.5-billion), and children's sports enrolment ($115-million). Adding up these tax changes amounts to perhaps $17-billion. Sensible tax policy would scrap this and use the money to lower personal income taxes and to target special payments to low-income people. The result would fairer, simpler and more effective.

Speaking of the poor, whatever happened to them? They're everywhere in Canada, except in election campaigns and federal budgets. The only subcategory of the poor that commands political attention is low-income seniors, to which all parties have made promises. As for the rest of the poor, parties barely even mention them. Even the NDP, which used to campaign in favour of "low and moderate income" Canadians, now talks incessantly about the "middle class."

Again, the reasons are political. The poor vote less than the more affluent; young people vote less than older people. "Middle class" is presumably what the poor aspire to become. A whole lot of more affluent Canadians appear to want to put the poor out of sight and out of mind to the greatest extent possible, starting with aboriginals.

If you haven't got much income to split to begin with, income splitting won't help you. Instead, there are a myriad of better ways of assisting low-income Canadians, assuming any political party really cared.