Harper Knows Best: The social engineering of income-splitting

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Stephen Harper is gearing up for the next election with a plan for rewarding "hard-working Canadian families." Or at least a few of them.

In truth, Harper plans to give something to all families by enriching the Universal Child Care Benefit by $60 a month per child -- thereby providing parents with an extra $2 a day.

Having taken care of the "fairness" issue with this toonie-a-day (almost enough to buy a child an ice cream cone) Harper goes on to propose what really interests him: a new tax cut that moves in the direction of ending progressive taxation, the long-established notion that the rich should pay higher tax rates than the rest.

Replacing progressive tax rates with a flat tax has long been the goal of Harper and fellow-travelling, hard-core economic conservatives. But a flat tax would be hard to sell to most Canadians, who would likely see it as a sop to the rich -- because that's what it would be.

So, rather than pushing for a flat tax right away, Harper has opted for what conservative pundit Andrew Coyne calls "baby steps." Coyne approves: "This will do, for now."

In fact, Coyne is downright supportive of Harper's baby steps -- otherwise known as income-splitting for couples with children -- and he even makes the Conservatives' case for them by insisting, oddly, that the new measure is about increasing fairness.

Income-splitting would allow a high-income earner (usually a man) to transfer part of his income for tax purposes to a lower-earning spouse, allowing him to be taxed at a lower rate.

This would address something that conservatives consider unfair: Under the current tax system, a one-earner family with a total income of $80,000 pays about $4,000 more in tax than a family with two spouses each earning $40,000.

And at first glance, this might seem unfair -- until you consider the overall economic situations of the two families.

Both families have the same total household income ($80,000) -- but the two-earner family carries significant extra costs, starting with child care (which can cost $14,000 a year per child) and a host of other work-related expenses like commuting (possibly requiring a second car), clothing, meals and payroll taxes.

Tax policy scholar Jonathan Rhys Kesselman argues that, once those other costs are considered, "it is by no means clear that the single-earner couple is treated disadvantageously."

Indeed, in terms of their overall economic situations, the one-earner family is likely better off -- especially if the two-earner family has more than one child in paid day care, according to Kesselman.

Yet in the name of correcting this alleged unfairness (which isn't actually unfair), Harper is proposing income-splitting -- a scheme that produces results that are, by any objective standard, grossly and patently unfair.

In fact, income-splitting -- which the Conservatives are misleadingly calling the "Family Tax Cut" -- actually offers benefits for only 13 per cent of Canadian families … and mostly rich ones at that.

Under the government's original income-splitting proposal, a very small group of high-income families would have received a juicy tax cut of $6,500 a year. After the idea came under fire as a huge perk for the rich, the government capped the maximum tax saving at $2,000.

But it didn't change the basic concept, which still provides no benefit whatsoever to 87 per cent of families and still gives its largest benefits to high-income earners with stay-at-home spouses -- in other words, to rich, traditional families.

Imagine three families, all raising kids, all with total household incomes of $100,000.

In the first household, the breadwinner is a single mother. Her benefit from the Family Tax Cut: zero.

The second consists of two working spouses, each earning $50,000. Their benefit from the Family Tax Cut: zero.

The third consists of a man earning $100,000 with a stay-at-home wife. Their benefit from the Family Tax Cut: Bingo! They get $2,000.

Three households, all with the same household income -- but only one qualifies for the "Family Tax Cut." By what stretch of logic could that be considered fair? Are the other two families not "hard-working" enough? Does the Harper government consider them defective in some way?

Their only flaw, in terms of qualifying for this tax break, is that they're not the kind of traditional family that Stephen Harper and his base clearly prefer.

Income-splitting also would reinforce the dominant role of men in relationships. The income-splitting itself is for tax purposes only. There's no actual transfer of money to the lower-income spouse (typically the woman), so it will do nothing to increase her autonomy or bargaining power within the relationship.

It would, however, increase her personal tax rate if she decided to go to work -- thereby discouraging her from doing so, Kesselman notes.

And the $2,000 benefit can only be claimed by someone paying tax, so in a "traditional" family it would typically go to the man -- who may or may not choose to share it.

Harper is proposing a regressive form of social engineering, using government tax policy to remake the country along the lines of Father Knows Best.

Winner of a National Newspaper Award, Linda McQuaig has been a reporter for the Globe and Mail, a columnist for the National Post and the Toronto Star and author of seven bestsellers, including Shooting the Hippo: Death by Deficit and other Canadian Myths and It's the Crude, Dude: War, Big Oil and the Fight for the Planet. Her most recent book (co-written with Neil Brooks) is The Trouble with Billionaires: How the Super-Rich Hijacked the World, and How We Can Take It Back.

This article is reprinted with permission from iPolitics

Photo: pmwebphotos/flickr

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