An issue of birth and taxes
TheStar.com – business – An issue of birth and taxes
May 27, 2008. JAMES DAW
Taxing families instead of parents could produce more babies, argues a University of Calgary economist and professor of public policy.
So the next time governments have room to cut taxes, Jack Mintz suggests the first priority should be to equalize tax treatement across family types.
In a bid to head off critics who argue other inequities could result from letting an above-average earner split income with a spouse â€“ as pensioners may do already â€“ he proposes some limitations and greater tax relief for those who live alone.
Canada supports its health care, social and public services by taxing individuals proportionately more as their incomes rise.
But Mintz has sided with those who question why Ontario parents with two children should pay about $315 more income taxes per month simply because one partner earns all $70,000 of their annual income instead of having two earn $35,000 each, assuming both claim only basic personal and child tax exemptions.
“It makes it much more difficult for one of the parents to stay at home to raise children or spend time doing voluntary work,” he writes in a paper released yesterday on Parliament Hill at a briefing staged yesterday by the Institute of Marriage and Family Canada.
“Ultimately,” he writes, “high taxes imposed on single-earner families drive people to make choices that they may not wish to make,” including having fewer children at a time when Canada’s birth rate is falling and society is aging.
Canada permits more opportunities to split income and transfer unused tax credits in old age than during the child-rearing years.
In this way, it is more like 21 other industrial nations than the United States, France, Germany, Portugal, Ireland, Poland, Luxembourg and the Czech Republic, which offer more tax breaks to single-earner families.
Mintz has taken an opposing stance to economist Jonathan Kesseleman of Simon Fraser University, who argued in a recent paper that it was justifiable to let pensioners split income to level the playing field with those who can set up a spousal RRSP (registered retirement savings plan), but that wider use of income-splitting would not be good public policy.
His main points were that: Two-income households have more work-related, home maintenance and child-care expenses; that households with stay-at-home spouse enjoy lifestyle advantages; and that tax breaks based on family income could discourage the stay-at-home spouse from returning to a career and becoming financially independent.
Mintz counters that Canada could increase the tax childcare expenses tax deduction, and the new $1,000 credit for employment income, while also giving a break to couples with a stay-at-home spouse.
Canada could expand opportunities for couples to split income to reduce total taxes, allow the option of filing a joint tax return, as in the U.S. and Germany, or allow a division of income based on the number of adults and children, as in Francce.
“None of the problems associated with family taxation are insurmountable,” he argues, provided governments are in a position to reduce their total tax revenues.
He calls for addressing whatever inequities there are between single and two-income households before governments decide attempt a general reduction in marginal tax rates.
But any broad-based tax cuts will likely have to wait until the uncertainty over prospects for economic growth has cleared.