Income splitting: a good idea, or a tool against feminism?

[velvetpage]

A friend posted earlier today about the need to leave the city where she and her family make their home, because it is not possible to live on one income there. She pointed out that if the Conservative government comes through with their plan to allow income splitting, it might mean they could stay put.

I knew almost nothing about this, so I did a bit of research. http://www.cbc.ca/money/story/2006/11/21/incomesplitting.html

Basically, income splitting means couples would file one tax return between the two of them, rather than filing separately as individuals. For couples where both parties earn around the same amount, this wouldn't make a difference, but for couples (like me and Piet) where our incomes differ by quite a wide margin, it would substantially reduce our tax load by taking one into a higher tax bracket but the other into a much lower one.

The research I did suggests that for this to benefit a couple, the difference in their incomes has to span at least two tax brackets. So, the difference between my income and Piet's isn't quite big enough; if it were added together and split in half, we'd be paying slightly more than if we each pay separately. However, if my income went up by another couple thousand dollars, it would benefit us to the tune of several thousand dollars' savings.

The main argument against it is a feminist one: it would make it harder for women to leave when their income was that much more closely tied to their husband's, when he presumably makes more. (That's a pretty big presumption, actually.) I don't really see the benefit of this argument, actually; it seems that this tax measure reflects the way most couples actually live - that is, pooling a great deal of their income, if not all of it, and paying the bills out of the common account. If that's the way couples are handling their finances already, then changing the tax system to reflect that shouldn't have much effect on her ability to dissolve the arrangement. As a safeguard, the joint return should include the amounts that are actually being pooled, so that, if there is a need to split them later, it is known how much came from each party.

Edit: a good argument against, here: http://qnc.queensu.ca/story_loader.php?id=45648d153a937

So, everyone, putting aside the party aspect for a moment (because "I don't trust this government to do anything worthwhile" is rather counter-productive to this debate) is this a good idea? Why or why not?

Comments

[anenomemama.livejournal.com]

I need to think about this a bit more, but I'm not really clear how this arrangement ties women's economic well-being more closely to their husband's than the current arrangements.

[velvetpage.livejournal.com]

Here's a good argument against, of the "tax break for highest earners, but nothing for the lowest" variety.

[velvetpage.livejournal.com]

Um, forgot the link: http://qnc.queensu.ca/story_loader.php?id=45648d153a937

[siobhan63.livejournal.com]

Is it a good idea in general for most? No clue. Is it a good idea for me personally? Yep, because i make significantly more than my husband. So, ummm... yeah, purely selfish reasoning on my part.

As long as they don't make it mandatory for couples to file that way, i don't see what the problem would be. Couples could choose to income split, or file separately. And they should be able to reverse the decision - i.e. maybe income split for a couple of years, and then if the lower-income spouse (everyone assumes it would be the woman, but, as i've stated, in my case, it's the guy), they should be able to go back to filing as individuals.

[velvetpage.livejournal.com]

I earn more than my husband, too. Even with six months on EI this year, I'll still earn more than him.

I agree about the reversal. It should be a choice you can make each year, to file together or separately, depending on which is most financially advisable.

[althea_valara]

I am not a tax accountant, but I'm pretty sure that's how it works in the US. We have five filing statuses: (1) Single; (2) Married, filing jointly; (3) Married, filing seperately; (4) Head of household; (5) Widow(er) with dependent child. You choose which one best fits your description/needs for that tax year. See the IRS website for more information.

Personally, I don't see anything bad about joint filing. In some cases it's going to work out better for the couple, just like in some cases (for US taxes) it works out better to itemize rather than taking the standard deduction. I'd have a problem with it if married couples were required to file jointly, or if they couldn't change their status from year to year. But otherwise... it's like you said: many couples already pool their finances. *shrugs*

[anenomemama.livejournal.com]

My situation, for almost my entire adult life, is that I have earned more than my husbands. (That makes me sound like such a ... hussy! But I have been married twice and this situation has persisted across both marriages.)

I have a concern that the arguments *against* income splitting rely on what might be an ossified assumption about women's income-earning capacity and practice. Although I know that women, in general, earn less than men, in general - I think it is relatively quaint to suggest that women will be "forced" into the home because of income-splitting - for many of the women I know, if income-splitting would allow them to stop participating in the workforce at least temporarily, while their children were young, they would probably jump for joy.

I feel like the argument against rests on a lot of assumptions and I need to think about what they are.

[redeem147.livejournal.com]

Our accounts are separate, we pay taxes separately, and I have no idea how we'd figure out who pays what. I'm darn well not paying more. I work part-time btw.

[velvetpage.livejournal.com]

The idea is that you'd probably pay less taxes overall if you filed a joint return, but you should always have a choice whether or not to file that way.

[athelind.livejournal.com]

Now, down here in the Untidy States, we have a Married Filing Jointly tax rate schedule that's different from the regular individual schedule, so a married couple can generally save by filing jointly. I don't know the details of how it's calculated; it's one of the Perks Of Married Life that's at issue in the Same-Sex Marriage Debate -- but probably the least important of those perks.

[velvetpage.livejournal.com]

My assumption is that if this were offered in Canada, it would be offered to anyone who can legally consider themselves married, possibly including common-law couples, definitely including gay married couples.

[urban-homestead.livejournal.com]

This is, itself, one of the big objections to income splitting that often comes from a certain segment of the left: that it demeans single people by suggesting that the family is a more important unit of society than the individual. Naturally, as a crusty old conservative, I think that's true! But this is controversial precisely because many people feel that their rights not to form a family are threatened, that people are "punished" at tax time for being single. Or, as one woman no-longer-on-my-friends-list just described the income splitting concept, a conservative plan to economically force her into being pregnant and barefoot in the kitchen.

[velvetpage.livejournal.com]

I think we've just found another point of agreement. First, no offense to the childless/free who may read this, but families are important, and supporting them should be a priority because they're ensuring the long-term future for everyone. Second, no tax cut is ever enough to force a certain course of action on anyone. The tax break is rarely enough to replace a second income, and the option of working certainly wouldn't go away. Someone who could almost afford a certain option might be able to actually manage it, but for most families, this will make a difference of a few hundred or a few thousand dollars at most. Her taxes won't go up because she's single.

Third, while demographically it's more likely to be women on the lower end of the wage imbalance, it's certainly not true for everybody. There are at least three women on my friends list who earn more than their husbands, and several more who have the education and training to possibly make more, if their situations were different.

Lastly, if the income-splitting were to include, for example, a single parent and a child old enough to have a part-time job, this could still benefit single parents and subsidize some tuition at the same time.

I don't get it.

[neosis.livejournal.com]

I don't understand parts of the argument against. It may effectively reduce the income of lower-middle class couples, because taxes might have to be raised to compensate for the lost revenue, but the government is currently collecting a surplus, so that's not a huge issue.

The argument that it will force women to work in the home to achieve the "huge tax savings" seems wrong. In that case, the higher wage earner might save more on income tax if the lower income earner generates no taxable income, however, that's an illusionary savings. Because you are actually losing the income that lower earner would generate and only getting a percentage of that back in tax savings:

Say the higher income earner, earns 50,000 dollars. If you split that two ways it's 25,000 each, which is pretty low for taxes, however, if the lower incomer earner could earn 25,000 in addition to that 50,000 then 37,500 each is obviously a better situation for both spouses.

The only time this isn't the case is when the real value of the domestic work the wife could do while unemployed outweighs the the tax levied on that addition income. So for example, if at 37,500 they both pay $1,350 more in taxes, then it becomes a question of whether tha 22,300 after tax income of the lower earner's job is worth the costs associated with it (like day care and travel).

I don't trust the Conservative government, but I can't fault them for attempting to make it easier for the "traditional" family to prosper. On the other hand, the point about most of the savings going to the very wealthy is an excellent point. On the flip side the savings are not unlimited, the savings max out at a combined income of around $227,608 because at that point, both spouses enter the highest tax bracket and are both taxed at the highest rate. Therefore the maximum savings appear to be $9,600.

Those are federal tax only numbers, and doesn't count surtaxes. I don't know if the provincial governments are going to follow suit and allow joint filling as well (I'm not sure if they even have the option of not doing so).

Re: I don't get it.

[velvetpage.livejournal.com]

In major cities, it's quite possible that the lower income would be outweighed by, in particular, daycare costs. If you're paying a thousand dollars a month per child, have two children, and your after-tax income is below $25 000, you're working to pay the sitter.

I should point out that this doesn't have to be limited to traditional (i.e. nuclear) families. Gay couples would qualify, common-law couples would probably qualify, and there was one suggestion that single parents of kids old enough to file their own tax return could also benefit.

Re: I don't get it.

[neosis.livejournal.com]

I suspect this program will, eventually, lower the demand for day-care spots and potentially lower the cost of daycare spots. Though, I'm not sure if daycare prices are cost-driven or demand-driven.

Re: I don't get it.

[velvetpage.livejournal.com]

Both, but cost more, because many daycares are non-profit or very-slim profit. Still, when cost includes expensive real estate in major cities and the employee expenses to get the right ratio of kids to caregivers (seven to one, for kids eighteen months to three years) not to mention all the toys, food, and safety equipment - yeah, it's expensive to run a daycare.