I’m against income splitting.
At first that statement may upset a bunch of people, and cause them to not want to vote for me when I run for office again, but I’d like to at least explain my reasoning. Then, if you feel that I’m wrong, please comment and we can discuss it.
First, let me be clear, income splitting would be a significant benefit for Mollie and me. For a middle aged engineer married to a musician who is also younger by a few years, our incomes are substantially different, and we would greatly benefit from the ability to be able to split our incomes for tax purposes. A quick & simple check tells me that we would save almost $10,000 in taxes annually if we were able to split our incomes on our returns. And if this money were invested in our RRSP’s (such that our net disposable income doesn’t change) the tax benefit is almost $14,000.
But would we benefit that much, really?
I contend that when all is said and done, all else being equal, the government books could not tolerate the number of people who would save on their taxes and that tax rates would have to rise to accommodate. After all, there is no one who pays more tax under this scheme, if the marginal rates don’t change.
So for arguments sake, let’s say that our $14k savings would actually be $7k after the whole system is adjusted upwards. Since the adjustment upwards presumes that the entire tax base is unchanged, that means it’s $7k that has to be paid by someone else. I have used 50% of my $14k here based on the idea of 50% of people benefiting from this change and 50% losing, although the actual numbers will vary. Of course, not everyone will use the money to invest in RRSP’s either, but you get the idea.
So who benefits? Those couples who have widely separated incomes. Families with stay-at-home moms (or dads) and one income or, in some peoples terms, families whose moms (or dads) can afford to stay at home since that sole income is large enough.
And who loses? Anyone whose income level is already fairly close to their spouse. And single people.
I have no statistics on hand to back this up, but my gut call is that the people most likely to be in the gain category are higher than average income earners and those most likely to lose are those that earn less.
We need to close that gap, not widen it. So although it would benefit me personally, I still would vote against income splitting unless hard stats could prove me wrong.
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