Income splitting was one of the policy proposals that the Conservatives ran on in the recent election. I think it’s a bad idea – a well-intentioned bad idea, but a bad idea nonetheless. But it’s also a policy that a lot of people I spoke with prior to the election had no idea was even being considered, so I think it’s also worthwhile to discuss it.
Income splitting is sometimes called “joint filing” (certainly it’s called that in the United States, one of the few countries to have it). It’s a fairly simple concept: if you’re married, you can take your income and your spouse’s income, add them together, and then each of you declares half of that total as your income on your tax return. Pretty straightforward.
The Tories pushed income splitting as being a “pro-family” policy, though, and I don’t think it qualifies. It’s certainly a tax policy that especially benefits a certain type of family – namely, your traditional two-parent single-income family, where the single earner making, say, $70,000 annually doesn’t pay taxes on a 70K salary, but instead effectively pays taxes on two salaries of 35K instead, which is a lot less tax in a progressive income tax system (about five thousand dollars less – a third of his tax bill). That’s a good deal for that family. It’s a lot less impressive for, say, a family earning 90K, divided between one earner making 60K and a second making 30K: their total tax burden goes from roughly $16K to roughly $15K. (It’s also a tax policy that benefits especially wealthy earners, not that this comes as a surprise: it’s essentially regressive.)
But what bothers me most is that a policy claimed as “pro-family” isn’t, not really, because income splitting is a policy that doesn’t have anything to do with raising a family: it has to do with marriage. Childless married couples get income splitting just like childrearing families do, and if there’s any reason for the government to promote marriage through tax policy, it is to create stable homes for children. Income splitting doesn’t do that: it just gives married people money. There are all sorts of policy options on the table for assisting families if you want to give them money that can do it in a more direct and equitable manner: baby bonuses, tax credits related to childrearing, paid parental leave, et cetera.
But the Tories didn’t push those: they pushed a policy that would only really help those families that, let’s be honest, Tories approve of, and they glibly suggested that it would help other families become more like traditional single-earner families (which it won’t, because the tax break can almost never compensate for the loss of a salary, even with the gains of having a full-time homemaker present). It’s a bad policy, and only the first of many the Conservatives will push through now that they have a majority.