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.

[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.

[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.

[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.

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).