Amid the apparent controversy over income-splitting for tax purposes with reports that the Conservative government may not be as committed to it as previously thought and left-wing groups such as the Canadian Center for Policy Alternatives and the Broadbent Institute attacking income-splitting as a pro-rich scheme, Andrea Mrozek of the Institute of Family and Marriage Canada has a column in the Ottawa Citizen explaining why it is good policy. The bottom line is this:
Family income splitting, as per Canadian economist Jack Mintz, makes sense and benefits a large group of families.
Families do not live, work or budget as individuals. Therefore, they should not pay taxes as individuals. It’s truly as simple as that.
We have written about income-splitting in 2007 and 2009 in previous budget coverage, and in 2012 work-at-home mom Lena Schuck wrote about how Canada’s tax policies favour divorce and cohabitation and argued not only for income-splitting but taxing families so that income can be split among minor-children, too.
When groups such as the CCPA and Broadbent Institute complain that the wealthy will be disproportionately advantaged by income-splitting, that’s because they pay a disproportionate share of personal income tax. But many middle-income families are being disadvantaged by being effectively taxed more when one spouse stays at home or works part-time compared to couples with similar income levels were both partners work. It is time to end that discrimination and as Mrozek says, it makes sense because it recognizes the reality of family life which is a partnership or unit.
All that said, income-splitting is not the best way to reduce the tax burden of most Canadians, it merely ends an unjust and unjustifiable discrimination against many married couples. The government should also lower income and consumption tax rates to make life more affordable for all families.