But, personal advantage notwithstanding, it’s bad policy. And in the debate dividing the federal Tory caucus, it’s Finance Minister Jim Flaherty who has facts and logic on his side, and Prime Minister Stephen Harper — so often described in past as “a trained economist” — who does not.
The key weakness of income splitting, whether for seniors as it exists now or for families as the federal Conservative platform proposes, makes it a good fit with the party’s political strategy, however. It’s another in a long list of selective tax breaks — a list that includes everybody from soccer moms to, most recently, search-and-rescue volunteers — that benefit a few lucky taxpayers at the expense of the rest.
This most logical rationale for this kind of “boutique” tax cut is that it buys politicians gratitude and support from the winners who gain a financial advantage. Meanwhile the pain of paying for this perk is spread among the much larger group who are left out. Because the hit to each loser is fairly small, most don’t notice it, or at least don’t get too peeved.
However, income splitting is a big boutique. The cost to the federal treasury of pension splitting for seniors, introduced in 2007, is approaching $1.2 billion a year, according to a study by the Canadian Centre for Policy Alternatives. The projected cost of proposed income splitting for families with children is more than double this.
All this money goes to rather few taxpayers. It’s only for couples, and only those couples where one spouse earns quite a bit more than the other — about 30 per cent of today’s seniors, and just 14 or 15 per cent of younger families.
Nor is this money divided evenly or equitably among the minority who qualify. Whether seniors or younger families, the poor get next to nothing, middle income earners get a significant but modest benefit, and the rich get a lot.
For example, a C.D. Howe Institute study calculates that couples with children under 18 would gain between zero and $500 under the proposed income splitting. Meanwhile, even though the splitting provision is to be capped at $50,000 a year, 40 per cent of the benefit would go to families with incomes over $125,000. The highest earners could get as much as $6,400 in federal tax savings, plus $4,523 on B.C.’s income tax.
When it comes to the existing provision for seniors, CCPA reckons the poorest 10 per cent average just 10 cents in annual benefits, and the poorest half of the senior population gets just $2 of every $100 in total benefits. Meanwhile, the richest 10 per cent gain $820 a year on average, and one family of each five in this group save more than $1,000.
When the business-oriented Howe Institute and the left-leaning CCPA agree to this degree, you can bet these numbers are solid.
Some defenders of the policy argue it promotes what economists call “horizontal equity” — equal outcomes for citizens in similar circumstance. The Howe study, in particular, rebuts this effectively.
One-earner and two-earner families with identical total incomes don’t face the same expenses, it notes. It’s cheaper to live when only one spouse has to go to work. And the savings aren’t just for obvious things like child care and transportation, but also on payroll taxes such as EI premiums.
In short, the Howe study concludes, the cash value of the perks of having a stay-at-home spouse are already more or less equal to the tax breaks the Tories proposed in their 2011 election platform.
Original Article
Source: vancouversun.com/
Author: VANCOUVER SUN
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