9. Income splitting would not permit vertical equity because the way it works in the US, a couple can declare as 2 individuals
and pay on that tax scale, or they can declare jointly and pay on a different tax scale. It has been noticed that by the way
they scales are designed, the tax rate for the couple goes up faster than does that for individuals and at some points it
would end up cheaper for the couple to declare as two individuals. This is a problem of the tax rate design not of the principle
of the option of income sharing. Obviously in the case of such rate shifts, couples could choose the way to be taxed that
benefited them most. They are not forced to use either scale
Under a principle of vertical equity, people who earn more pay more tax not just in absolute dollars but proportionally,
a higher tax rate which they can afford. There is however an equity in what part of their income is devoted to tax.
some may argue that the current system also lacks vertical equity since though the rich
Pay a higher tax rate in theory they also have more tax loopholes and deductions
And many very wealthy pay no tax. There is also the argument that even if the wealthy pay a higher rate of tax, they
still have much more income and access to luxurious lifestyle than do the poor so they do not suffer’ due to a tax
rate change nearly as much as the poor do. If the current tax system lacks vertical equity, then an adjustment to permit
income splitting is not inferior if it also lacks complete vertical equity. It may enhance vertical equity in fact because
it would remove from the wealthy some tax dodges since income would be taxed wherever it was, and at the same rate. It would
not be as easy to escape paying tax.
10. here are many charity and government helps for those with low income. If we permit sharing of income, those who seem
to have low income as individuals might now earn too much to get access to those help programs.
Obviously the help programs are probably designed with different cutoffs for the individual than for the couple. Government
cannot object to another government policy as unchangeable since government itself could change it. Change the cutoffs for
qualifiers for those in poverty who are in households
The couple that earns nearly equally eg. $30,000 and $30,00 pays the lowest tax, and the couple that earns vastly unequal
salaries eg. $5,000 and $55.,000 pays the highest tax even though they both total $60,000 per household. The argument is made
that if we permit income splitting the people who will be happiest about the change will be the ones at the extremes, the
$55,000 and $5,000 earners and that the equal earners will benefit least from the switch. So the claim is made that having
a joint filing option benefits mostly the higher earner.
This argument does not note that currently the system favors the equal earners and penalizes the ones at the ends. To
correct an unequal system will of course look unequal as a correction but the effect is now to attain equal treatment.
11. the claim is made that if the lower earner is now taxed as sharing income with someone who earns more, this person
may not be eligible for welfare any more, or for dental and health benefits people on social assistance can get. The person
will have hit the welfare wall and be suddenly earning too much on paper to get help with the dental and medical bills.
In fact were joint taxation to be an option, this would simply change the qualifiers for welfare programs because obviously
the person is no wealthier than before. This is an argument based not on fairness but on administrative red tape which can
easily be corrected
12. If there is income splitting in the form of a single rate tax, the poor end up paying more than their share. For the
rich a 15% tax may be much less than they used to pay and will leave them with a lot of luxury. For the poor a 15% tax leaves
them still with a much smaller amount of money than the wealthy and proportionately much less spending money
There are in most single rate tax systems, cutoffs so that the very poor do not pay tax still. Some systems also permit
17. The argument is made that the nonearner never gave to the pension plans so is not entitled to take money out of it.
18. The state dislikes any options taxpayer may have to evade tax by declaring income in the hands of another party who
then pays less tax on it. Income splitting is discouraged because it permits people to do that.
In fact the wealthy have many ways currently of reassigning income to spouses as employees of their professional corporation,
or to have family trusts for their children. To permit income splitting would make moving around income to evade tax less
attractive since income would end up taxed at the same rate wherever it was declared. Income splitting then would encourage
more compliance with tax rules and would level the playing field of options for the poor.
Current tax law requires that if a person transfers cash to a lower earner, the
Transfer is not taxable to the receiver but to the giver, except in a few circumstances. attribution rules
19. Income splitting would make some couples pay less tax than they currently pay. Others would not get that tax break.
So it would be an unfair adjustment.
There are several responses to that argument. The first is a philosophical one.
Obviously if a tax system is unbalanced and there are winners and losers, the losers will cry out for adjustment. The
reply to them that it would be a windfall for them and would give them way more than the current winners get as adjustment
is not logical. Of course an adjustment that corrects imbalance will have to be revere imbalanced to correct it. However
the end result is balance.
Currently all households of disparate income are paying a tax penalty but the biggest penalty, a 4245% higher tax rate,
falls on the single income household.
To see that household style as getting unfair advantage by an adjustment, or unfair encouragement, is not consistent with
the realization that right now they are the most heavily penalized. To permit income splitting simply levels the playing field.
There are already winners and losers. This would be a correction of unfairness.
But second, when a government decides how to adjust taxation to be fair, the guiding principle is fairness. Once a decision
is made to be fair, there is no logical reply that we can&t afford to be fair. A way must be found.
20. Income splitting would cost too much in lost revenue for government.
Estimates in Canada have been made of the cost of this tax adjustment. MP Garth Turner has estimated that permitting pension
splitting, which has recently been approved, will result in a loss of $301 million per year for government. He estimated
that permitting income splitting for those currently earning would cost $3 billion a year. The Department of Revenue has
estimated that the cost of permitting income splitting for all age groups would be $4 billion a year.
Those numbers must be understood in context however. The cost of a one per cent cut in the GST as promised, will cost
more than the entire income splitting adjustment.
The current government has a budget surplus and has vowed to give tax breaks rather than to continue the Liberal tradition
of large surpluses. Finance Minister Jim Flaherty has just announced Nov 10 2006 that his government is projecting after
inflation economic growth of 2.8 % this year. The surplus for the fiscal year, ending March 31 2007 is forecast to be $4.6
billion, at least $1 billion more than previously estimated.
In the US the cost of income –splitting has been estimated at $18$30 billion per year and yet that nation has
seen merit to permitting it and one must recognize that not all households will use the opportunity so costs are often less
Calling a loss of tax revenue from an unfair tax, a cost however is somewhat misleading.
Right now when the state gets free work done, birth of new citizens, attentive care raising these children to be honest
and caring, it is the state that benefits and yet if it allots no funding to those who provide each new generation, it in
essence is ignoring a huge financial benefit it already gets. In tax policy there are government expenditures; which are
areas the state could tax but chooses not to, such as contributions to political parties, expenses to run a business, and
it does this and foregoes revenue in order to permit society to have some leeway and function. If it is willing to write
off some lost revenue in those situations, it is only logical for it to admit that it is also ignoring something on the other
side of the ledger benefits that it is getting but not paying for. Unpaid caregiving has always been in that area and has
rarely been acknowledged. When it finally does become acknowledged that all along government has been living off this free
labor, usually of women, and just assuming that someone would be home and taking care of children or the elderly or dying,
this recognition is not a cost or loss but is deserved and even long overdue funding.
It should also be noted that in the bigger picture, when people have more options about how to balance career and family,
through income splitting, as one avenue, there is greater happiness, less poverty, less reliance on food banks, more productivity
on the paid job and less use of the criminal justice system. With adequate funding in the home there is better nutrition and
better health. So there again, a ‘cost’
Of having an option of income splitting has to be counterbalanced by the gain the state will get in reduced payments needed
for health care or criminal court justice, for stress leave and for welfare.
An amount of $34 billion per year also has to be put in context of other costs. Transfers of the federal government to
the provinces in 2002 alone were $30 billion. The government spends $3.2 million in direct health care for the military and
first nations. The government collects employment insurance premiums and since 1994 has collected more than it has spent.
The current surplus, growing at $2.5 billion per year is now $53 billion. The money is redirected to general revenue.
With 2 million preschoolers in Canada, the cost of a daycare program for each one, at $10,000 per space per year would
be $20 billion.
This amount need not be spent however if we permitted income splitting and then parents would be better able to afford
to create and fund the childrearing style they actually wanted.
21. Income splitting is unfair because it is simply a tax dodge
In a 1998 Supreme Court Case Newman a man transferred shares from his company into the hands of his wife, where income
from them would be taxed at a lower rate. He was challenged for having done so because she had not been an officer of the
company. The court ruled that section 562 of the Income Tax Act is not a general provision against income splitting. It said
Taxpayers are entitled to arrange their affairs for the sole purpose of achieving a favorable position regarding taxation
and no distinction is to be made in the application of this principle between arms length and non arms length transactions
This argument is one of simple merit. It assumes that the earners income was only for the earner, which in many cases
was not the case, that the earner earned purely on his own merit and not due to the backup support at home of the nonearner,
and it assumes that the work of the nonearner was irrelevant to the earners availability for evening shifts, long hours, corporate
travel and other obligations of the job. Those assumptions are often in error. The nonearner in fact has been recognized
by some universities, some corporations and even in divorce law as having had a major part in enabling the earner to earn.
So it could be said she did her part of the earning and her part of the deserving of pension.
22. The argument is made that the household benefited from the unpaid work of the caregiver at home, getting its childcare
and housework done without having to pay someone to do it, and getting more leisure time, so it is only fair that the couple
with the single income lifestyle pay more tax.
The imputed benefit of the caregiving at home is seen as an undeserved plus and it is being suggested the family on one
income should be paid for having given up a second income. This double penalty loss of income and now penalty for losing
it seems very unfair.
23. The argument is made that the dual income household has more expenses than the single earner home because it has to
have two work wardrobes, two vehicles, and it has to pay for childcare
In fact the single earner home also have two people in clothing, has two people who go places every day and is paying
a very high cost of childcare the salary loss or the person at home. To ignore those costs is unrealistic since they impact
a household budget significantly. Both households have expenses of roughly equivalent nature. Only one may have receipts but
both have the expenses.
24. Government would lose too much revenue if it permitted income splitting.
Recent estimates of all public tax expenditures of the federal government, being benefits it does not tax such as EI,
deductions and pensions is $90 to 120 billion per year. The estimate of the cost of income splitting have been made by MP
Garth Turner. The current government is in surplus so such an income loss might not be problematic. However if it were, what
amount it does cut in could be recouped by an increase in corporate tax which have been going down.
2006 MP Garth Turner has tallied that permitting income splitting would cost about $3 billion per year. He says that a
more modest adjustment, permitting pension splitting would cost onetenth of that, or $300 million.
2004 Every year the federal government publishes a study of how much tax revenue it foregoes, what amounts it forgives
in essence, in order to stimulate the economy. These are not technically losses; to the state since they are considered investments
and forgiveable costs people have for living which it is not fair to tax them on. Tax Expenditures and Evaluations of Department
of Finance estimates that the federal personal income tax expenditures not counting transfers to provinces were close to $90
billion. If one includes the expenditures due to corporate tax and the GST the total of expenditures is $120 billion.
25. There is already a mechanism for income splitting and it is enough to meet the needs of those who share income. The
married deduction, the ability to transfer unused credits, the spousal RRSP already permit income splitting adequately.
The married deduction has never been as large as the basic pesonsl exemption. This deduction or spousal credit is in amounts
indexed for inflation in 2000 dollars.
In real amounts in 1988 it was $850 when basic personal was $1020
In 1999 it was $6055 when basic personal was $7131
It is about 86% of the deduction of any single adult. In the 1950s it was about 33% of an average salary but now is less
than the minimum wage which is $12,480 and about 1/7 of an average wage.
The C. D. Howe Institute found in 2002 that some family arrangements have more options for income splitting than do others.
The self employed and those with a family business can pay other family members to perform business related services but most
taxpayers are not in that position.
Jonathan Chevreau of the National Post has noted August 20 2005 that some professionals such as doctors and dentists
can incorporate and can confer tax deferral and capital gains advantages to family members. Sandy Cardy of MacKenzie Financial
Corp has found that some professionals net over $300,000 a year and income splitting for them saves them tens of thousands
of dollars in tax. In addition some wealthy taxpayer are eligible to create a family trust so that each family member is
a shareholder in a corporation or a beneficiary. A doctor whose wife is at home with children can get $30,000 tax fee from
the family trust and each child age 18 or over, in postsecondary can get over $40,00 tax fee per year. Most families however
are not eligible for that family trust option. In Ontario nonprofessionals are even excluded from that option by law.
Patricia LovettReid of TD Waterhouse Canada has found that some people hesitate to pay for a spousal RSP because they
fear that if the marriage ends thee will be a financial loss. Gerald Sadvari, lawyer has noted that a spousal RRSP is treated
like any other asset and is part of the equalization between partners on separation or divorce. However currently married
partners are unable to assume an equalization of the benefits.
The amounts needed to provide for ones senior years by RRSP are considerably higher than most people have. Patricia LovettReid
of TD Waterhouse has found Jan 2005 that for many people the senior years last 3040 years. IF a woman who retires at age
65 has invested RRSPs at 6% interest, and plans to withdraw $3,000 a month and there is no inflation, she will still need
to have saved $375,425 to last till she turns 80. If she lives to age 100, she will need to have saved $543,160.
Jamie Golombek of AIM Trimark Investments has noted Nov 2003 that some couples can have the higher income earner oan
money to the lower earner at interest such as 3%, , and the receiver of the loan pays him only interest but can invest the
loaned money at a high yield such as corporate bonds yielding 5.5% interest. The person who gave the loan has to declare the
interest as income but has effectively reduced his or her tax rate while the receiver of the loan can deduct the interest
payment and is taxed on income in a lower tax bracket. This option also only is useful to the wealthy.
In fact most benefits are not ones the lower income sector can claim. The benefits mainly affect the wealthy.