Income Splitting, and why government money is suspicious

Stephen Harper, current Prime Minister (for like, ever) announced in the fall of 2014 that his government was offering all of us Canadians the choice at income splitting. And in a rookie yet effective PR move, he packaged it as the “Family Tax Cut”.

Canadian Loonie- flickr user JayPIncome Tax Splitting can get…confusing. It basically allows a higher earning spouse to transfer up to $50,000 of their income to the lower earning spouse in order to avoid the higher earner being taxed at a higher rate. Sounds awesome, yes? Then you should be suspicious, because ain’t nobody givin out dollars for free. To sweeten the deal, Harper was all “here’s this sweet new tax break!…AND all these extra Universal Child Care dollars for your kiddos, you’re welcome, Families!” :: finger guns :: (And then his handlers were all, “we’re calling an election in the summer so let’s wait and give em all a big wad of cash riiiiight as we announce!” Which is…typical if not gross.)

Immediately I pumped the mental brakes. “Is that…hush money?” I thought to myself? It might be. Cause if you took it all at face value, it looks like the majority of Canadians who need a tax break and help with the costs of raising a family, are getting a solid from the Canadian government. More money every month, and less taxes owed yearly? Whew, feels like a weight off, certainly. And the truth is, for some, it just might end up being a breath of fresh air. But there’s a whiff of something shady in it for me and I’m gonna explain what that is.

The $60/mo increase in Universal Child Care and the extension of that program until your kid turns 18 is nice as a month-to-month realization. Money in your bank account from the government is sweet. The program, however, is a lot like throwing a bone to the majority of people that the Family Tax Cut doesn’t help. Single parents, lower-income families, and spouses who earn close to the same won’t realize the savings of income splitting because it doesn’t apply to them. Which is unfortunate because it should be glaringly obvious that at least two of these are the Canadian families most in need of tax breaks. Never mind that the Universal Child Care benefit is taxable income. Actually, do mind. It may end up being minimal, but the government is effectively adding more to the bottom of the pile it’s claiming to be scooping the top off of.

John Geddes did an early analysis of the program for Maclean’s magazine and found that income splitting mostly benefitted both those families making over $180thousand a year (LOLOLOLs…) and those between $60K & $120K. High and middle-class, basically. Great! So that leaves a growing gap between the middle class and those below it, and provides an increase in benefits to the highest earners who actually don’t need it to like…survive. It leaves me cold. In a social way, it also promotes the traditional idea that one person in the home will be earning much much more than the other. Which? Eff that ish.

I’m no economist, I can barely math on my best day, but it seems to me like we could scale the income splitting benefits to apply an increase in benefit for those families earning below $60K. Or shift the increase in UCC instead to the Canada Child Tax Benefit, which is non-taxable and based on your income- meaning the lower earners get the greatest amount of benefit. (Duh.)

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