Friday, November 17, 2006

Split The Income, Not The Family

As Sara at Choice For Childcare prepares for a conference in Ottawa on income-splitting, here's my take on the situation and some changes I'd like to see.

As things stand, the tax system penalizes single-income families with a stay-at-home parent. For the same household income, a significantly greater tax burden is borne by the single income family when compared to the dual-income family. Consider a household income of $100,000. If this was two parents earning $50,000 each, the family would pay a shade over $20,000 in income taxes and enjoy a marginal tax rate of 35.5%. If the $100,000 was earned by one parent when the other stayed home, then the family would pay around $28,000 in income taxes, with a punitive marginal tax rate of 43%.

Now, there is of course some economic benefit when two people are in the paid workforce, as against one person. However, the amount of money someone gets paid to do a job is one of the major indicators of the economic benefit of the activity, so to some extent, the free market has determined that the overall worth of the work performed outside the home in the above two scenarios is roughly equivalent. And, of course, there is a cost to the economy when two people work, because someone still has to take care of their children. It's inconvenient, but it has to be done.

In reality, the reason the tax system is set up this way is to encourage dual-income families and to discourage the nasty, old-fashioned, anti-feminist practice of stay-at-home parenting. The tax system is the main instrument of social engineering that a government has at its disposal and since the 1960s the thrust of social engineering has been the pursuit of the feminist utopia.

This liberal mindset has become so established that it's almost impossible to question, and yet it's at odds with most of the anecdotal evidence. Go into a typical office. Ask all the women working there if they'd rather have stayed home to raise their kids, and you'll get a hefty percentage who will say yes, they would have liked that option, but they couldn't afford it. The tax system is one of the primary reasons why that's the case.

Income splitting will level the playing field. It gives each family the freedom to make the best choices for their childcare and their careers, free from government pressure in any particular direction. Far from the feminist perspective, where equality is measured by the number of women forced into paid work, income splitting represents true equality; equality of taxation and equality of opportunity.

It goes without saying that this doesn't have to be all-or-nothing - a significant increase in the Equivalent-To-Spouse amount, for example, would really help us struggling single income families, while still respecting those of a different perspective. But the whole question of the tax system and its impact on families is something that needs an urgent debate. Sara's conference isn't happening any too soon.