Groups urge government support for income splitting

by Beverley Smith

Many people have never heard of income splitting or if they have are not quite sure what it means. Since last October when the federal government said it would permit pension splitting, it is becoming important to understand this tax option.

On January 30, 2007, in the west block of Parliament Hill, we aimed at doing just that. Economists David Murrell of the University of New Brunswick and Philip Merrigan of University of Quebec at Montreal joined tax analyst John Williamson of Canadian Taxpayers Federation to explain how the tax system could change.

And to explain why it should, there was speakers who take care of children, the sick, handicapped, elderly or dying. These caregivers usually are low paid for their work -- daycare workers earn about as much as a parking lot attendant -- or they are unpaid, in the home, taking care of their own family.

What is Income Splitting?

Income splitting is a way to tax households based not on individual earnings but on household earnings. There is a separate tax bracket if you share or 'split' income and it is nearly always lower than if your income is just for you. We don't have that option in Canada. We have individual based tax only.

The difference can be striking. Chartered accountant Heather Gore-Hickman recently compared four households with a total household income of $60,000. The couple that had two earners each making $30,000, paid tax of $6276. The next door couple earning $36,000 and $24,000 paid tax of $7049. The couple next to them earning $50,000 and $10,000 paid tax of $7959. The last couple on the block, with only one earner making $60,000 while the spouse at home had no income, paid a tax of $8783. What one notices immediately is that the last couple pays 42%higher tax than the first couple, even though they have identical total incomes or 'ability to pay tax'. The other thing you notice is that all households probably pay some penalty and the only exceptions are those with spouses of identical incomes, which is rare.

Income Splitting in the U.S. and other countries

	Capitalism is Not Democracy is a book for further reading on this subject.

To permit income splitting as in the U.S. would give taxpayers four options. You could be taxed on the individual earner scale, the single head of household scale for single parents, on the married but taxed separately scale if you prefer that, or on the married couple sharing income scale. You pick the scale that gives you the lowest tax rate for your situation. In this way there is no longer a penalty for how money was earned. You pay only on amount earned. For many countries, in fact a dozen including not just the U.S., but also France, Belgium, Germany, Greece, Ireland, Iceland, Luxembourg, Norway, Poland, Portugal and Spain this is a tax option. It is not available in Canada.

Why do some couples have disparate or unequal incomes? Often because the lower earner is also doing care work, taking care of the children, a sick relative, an elderly person, or doing volunteer work. These unpaid roles are vital to the economy and provide each generation of new taxpayers but they are not counted in the GDP or productivity tallies. The result is that the unpaid and low paid care sector is actually penalized for not earning. They are treated as if they are doing nothing and their perceived laziness is being punished.

The tax penalty above is not the only one either. Ironically most benefits for caregiving such as maternity breaks, parental leave, palliative care leave, even the child care expense deduction are not tied to the fact you have a baby or someone dying to take care of. Those tax breaks also are tied to how much you earned recently.

Many Canadians over the last century have noticed the way traditional economics favored paid work and ignored unpaid work. Some have suggested ways to correct this imbalance. In 1907 Sir Richard Cartwright proposed pensions for homemakers. Family allowance in 1944 helped fund caregiving as did a child dependent deduction but those were both quietly shelved in the 1990s. The spousal deduction in 1957 let a man deduct his spouse for about one-third of an average income but that amount has now dropped to about one-seventh. The spousal deduction federally continues to be lower even than the full personal deduction as if the spouse at home doing care work is less than a full person.

In 1967 the Carter Commission suggested income splitting and the 1967 Royal Commission on the Status of Women endorsed the proposal but again, nothing happened. The 1970s saw a proposal for wages for housework and the Canadian Council on Social Development suggested in 1972 a guaranteed annual income. Though none of these proposals was implemented, divorce courts started to rule that the caregiver role in the home was vital work and on divorce, was worthy of half the marital assets. However during marriage, the caregiver role was still equated with 'not working'.

In 1995 at the United Nations, Canada promised to tally and value all unpaid work. Its census studies did the tally but tax laws never changed.

In the last few years Canada has urged women out of the home, not just helping those who get paid work with low-cost or free daycare, maternity benefits and pensions, but ensuring that those who do not leave the home do not get those breaks. The tilting of the balance was evident- the state wanted women to escape the care role because it was not useful.

Other nations on Income Splitting

Yet other nations felt differently. Italy gives pensions for the homemaking years. Norway funds all care of children in daycare or being cared for at home. Australia and France join the growing list of countries offering generous birth bonuses because the birth rate was so dangerously low they realized they need children and taking care of them is important to an economy.

Some recognition for caregiving in Canada

Last fall in Canada, two moves were made to return some recognition to caregiving. The Minister of Finance permitted pensioners to pay less tax if they shared their pensions. This move finally gave dignity in old age to those who had been caregivers. And a universal child benefit was set up, as if to value care of all children, though its amount was painfully small.

Some have worried that to value the care role would force women back home. In fact that is not what has happened in other nations that permit it. It simply removes penalties for the options and lets women go into and out of paid work as they prefer. The concept of actually valuing caregiving, a historically female role, is part of the women's movement of the third wave.

Activists and other Canadians who support income spitting hope to put constructive pressure on the federal government to end a tax policy that has kept women down now for a century. We believe that the time for income splitting has come.

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About the author:

Beverley Smith is a long-time activist for unpaid labour. She was a co-host of the upcoming

Recommended Readings:

Capitalism is Not Democracy, Part I, ISBN: 1894934636, Agora Publishing Consortium, 2006

ACQUIRE BOOK HEREIN