Editorial Calgary Herald.  February 19, 2014.

Following last week’s budget, federal Finance Minister Jim Flaherty dropped strong hints that the 2011 Conservative election campaign promise to allow couples to split income in order to lower a family’s income tax burden might be dead. Prime Minister Stephen Harper has also weighed in with something more than a hint that the Tories may backtrack on their promise.

That promise, for the record, was explicit: “Currently France, the United States, Germany, Belgium, Greece, Luxembourg, Portugal, Switzerland, Ireland, Norway, Poland and Spain allow families some form of income splitting” said the Tory campaign in 2011. The Prime Minister himself said this: “The tax system doesn’t recognize the fact that many, even most families, pool their income to pay their household bills,” who then continued to criticize the status quo: “Instead it treats families the same as roommates living under the same roof with no financial attachment. That’s not realistic; that is not fair.”

In his 2011 election campaign stop, Harper announced the income splitting promise was to be fulfilled as soon as surpluses return to the federal budget. Harper even staged one of those “photo ops” that he is known to dislike, in the Vancouver Island riding of Esquimault- Juan de Fuca, and even paraded a local family in front of the cameras.

Back in 2011, the Prime Minister gave the example of a two-income family, where one spouse earns $60,000 and the other earns $20,000. The Member of Parliament for Calgary Southwest told the cameras that such a couple “pay almost $1,300 more in federal taxes than two people in an identical household each earning $40,000 even though their combined income is the same.”

Here is our question: What changed between March 2011 and February 2014? Other than a minor and scheduled tick upwards in the basic personal exemption, Canadians have not been given any new federal tax relief. (Tiny boutique tax credits and a few welcome but still paltry cuts in border tariffs hardly count). So the basic inequity in the current system still exists as presumably does the $1,300, give or take a few bucks.

So call us unimpressed with the Prime Minister and Finance Minister’s latest fiscal flip-flop. It is possible they have backed off because of the criticism that income-splitting would only benefit “the rich”.

It is true that under any income splitting scheme that those who earn more than $50,000 a year — middle-income and wealthier taxpayers — will benefit more than those under $50,000. But there’s a good reason for that: Those who earn less than $50,000, the bottom 73 per cent of tax filers, pay just 17 per cent of all income tax. Those who earn more than $50,000, more than one-quarter of all tax filers, pay 83 per cent of all federal and provincial income tax.

So of course income splitting will benefit middle income and higher-income taxpayers more because they already pay the lion’s share of all tax receipts in Canada. But it strikes us as cheap and envious to argue against income splitting on that basis given the tax burden distribution. Besides, as Harper’s own 2011 example showed, the dual income couple with $60,000 and $20,000 in income would be better off if they could split their income, and better off by $1,300 annually or $6,500 every five years.

Other arguments against income splitting are cruder — that the prime minister and his colleagues are warring against working or single moms. This is crazily sexist, actually. More men than ever are choosing to stay home to raise children — and income splitting would benefit them. There are also plenty of examples of working moms whose income is higher than that of their husband and income splitting benefits those moms and their families.

Plenty of working parents wouldn’t mind staying home for a few years while the children are young, a choice that should be facilitated and not discouraged by a supposedly family-friendly Conservative caucus in Ottawa. And as Andrea Mrozek, executive director of the Institute of Marriage and Family Canada, argued last week, the income splitting model for families could be modeled after France, where a single parent can share their income with their children. Problem solved there.

To be sure, there are other possibilities to get the tax burden of Canadian families down. Three economists from the Fraser Institute recently suggested income splitting was another wrinkle in an already complex tax system; they preferred middle-income families get a tax break courtesy of dumping the middle two tax brackets (22 per cent and 26 per cent) that would in essence flatten the progressive tax brackets, leaving a flat 15 per cent rate for most Canadians and a 29 per cent rate (for income above $136,000) for only a small percentage of Canadians. The economists said the effect of such eliminating and flattening of brackets would be similar to income splitting.

That might be an option. However, it was not the Herald that campaigned on income splitting in 2011, nor did we use families as a prop to win votes. So we offer this advice to the Member of Parliament from Calgary Southwest, the Finance Minister, and their caucus colleagues: In 2015, whatever you do, you better deliver at least a $1,300 tax break to that Vancouver Island family and a tax break for every family as big as the one you promised in 2011.

Source:  The Calgary Herald