income splitting is not the answer

i'm against this; because it does not create a level playing field for all families. it leaves out the single / lone parent, or the great many families who live close or in poverty; and like it or not those who live in poverty are the ones that need it the most.

Budget speculation buzzes with talk of income-splitting for the middle class
January 30, 2007

OTTAWA (CP) - Income-splitting is a vote-getter that would save middle-class families billions of dollars a year in taxes, but experts say that doesn't make it sound fiscal policy.

MPs inside and outside the Conservative party are urging Prime Minister Stephen Harper to lower taxes in his upcoming budget by allowing couples to combine their incomes and divide the tax load.

But some experts say income-splitting could blow a hole in the country's finances.

"It's known to be counter-productive to any responsible fiscal program," says Kathleen Lahey, a law professor and tax policy specialist at Queen's University.

"Most countries that have ever had any form of income-splitting . . . have been abolishing it or reducing it as quickly as they can because it's just too expensive," she said in an interview.

Economists have repeatedly shown that allowing single-earner couples to split income also encourages "marginal workers to withdraw from work," Lahey says.

"It's anti-competitive."

Still, the idea of a radical tax shift to ease the burden on single-earner families has vocal supporters. Two working parents with combined earnings of $80,000 now typically pay much less tax than couples with just one parent earning the same amount.

It's a discrepancy that critics have long said is unfair.

Closing that tax gap would make fiscal and social sense, says Independent Ontario MP Garth Turner.

"There's a lot of people who want to stay at home. They want to look after kids," he said Tuesday before hosting a Parliament Hill meeting to discuss related pros and cons.

"Many young couples today put off having kids until they're in their 30s because, man, who can afford it?"

The gathering included seniors, parents, policy makers and MPs of all stripes.

Income-splitting would cost Ottawa about $2.2 billion a year, Turner said, citing a parliamentary assessment he requested.

"It sounds like a lot of money. But that's one-third of the cost of the GST dropping by one point," he said of Tory plans to shave another point off the Goods and Services Tax to five per cent.

"It's really a matter of choices."

Economists have pegged the cost of income-splitting at anywhere from $3 billion to $5 billion a year.

"It's one of the most expensive things any government could do," says Lahey.

Still, Turner insists the time is ripe.

"Now that we've opened the door to pension-splitting for seniors, it's only a matter of time before this principle extends through society."

Finance Minister Jim Flaherty announced last October that seniors could save tax by splitting pension income - a move that's expected to cost the federal treasury about $1 billion annually.

It also raised hopes that Conservatives will include income-splitting in their coming budget.

Critics of the idea also point out that it will do little or nothing to help low-income singles or couples who arguably need help the most.

But John Williamson of the Canadian Taxpayers Federation stresses that higher-income couples shoulder a disproportionate share of the tax burden.

The weight is especially heavy for single-earner families.

An Ontario single-income family of four with two young children, earning $80,000 in 2007, can expect to pay $2,780 more in federal and provincial income and payroll taxes than a similar family where two working parents earn $80,000, Williamson said.

Income-splitting would help, although the federation favours broad-based tax relief that would benefit many more Canadians, he added.

Measures that would help stay-at-home parents contribute to the Canada Pension Plan or other retirement funds are also missing.

And income-splitting does nothing to help people like Suzanne Paulin, who attended the forum Tuesday.

The single mom of a four-year-old girl is living on about $800 a month as she studies to become a paralegal. Staying at home would be wonderful, "but you need to work to get ahead," she said.

"I've never lived above the poverty line - especially trying to raise a small child on my own.

"I'm for anything that puts more money in a person's pocket that can help them raise their children. I would love to get extra money in my pocket, too."