Friday, November 7, 2014

A Tax Cut in Name, a Tax Increase in Reality

Much has been made of the Harper Conservatives' new income-splitting tax cut. It's actually called the Family Tax Cut. The schedule on the federal income tax return will actually be called Schedule 1-A: Family Tax Cut.

While Conservative supporters came flying out of the gates praising the measures as putting money back in the pockets of Canadians, it is only doing it for a few, for those who need it least, and on aggregate, is actually increasing our personal income tax burden.

Changes impact few Canadians

54% of families in Canada with children under 18 will get no benefit from this. Another 12.8% will only get an extra $250, not nearly enough to pay for even one month of child care for one child. Of all Canadian households, only 10% will see some benefit from income splitting.

Benefits those who need it least

Who does benefit mightily? Families with one high income spouse and one low income spouse. There is a small segment of the population that will reach the $2000 cap for this program. Here is the family structure you must have to maximally benefit from this program.

1. 1 or more child under 18.
2. 2 parents
3. A combination of the following annual earnings for each parent
a. Parent A makes $75k or more and Parent B makes nothing
b. Parent A makes $150k or more and Parent B makes $25k or less.
c. Parent A makes $200k or more and Parent B makes $50k or less.

You see now why it's not so unbelievable that less than half of Canadian families will benefit.

The average income splitting benefit per couple doesn't get north of $600 until they're making more than $82000.

You can't even make the argument, as supporters of the Conservatives and this plan do, that this will be of most benefit to those who choose to stay home and care for their children. The median income of families with one breadwinner and a non-working spouse is $40000. Their benefit from this plan would be $38 or less.

It increases the personal income tax burden of Canadians

The Parliamentary Budget Officer crunched the numbers on this plan. And here is where it falls completely apart.

The Conservatives would have you believe this is putting money in the pockets of Canadians. And it is. For one whole fiscal year.

After 2014/2015 (an election year), this plan causes two things to happen.

1. The total personal income tax burden on Canadians increases.
2. Total government expenditures increase. A lot.

The government has introduced a tax cut that actually causes taxes to increase. But not enough to offset the cost of the program. 

Enough so that by 2018/2019, it will COST the government an extra $4.8 billion.

If all that were not enough to make you wince, they are taking some of your tax dollars to advertise this tax cut increase in their typical partisan fashion, even though it will not actually be a law until next year.

It eliminates the Child Tax Credit

A previous version of this post mistakenly stated that the Child Tax Benefit would be eliminated. This was untrue. Due to the similarity of the names and the reporting of both names in connection with the Family Tax Cut, it was confusing.

For the sake of clarity, the CTB is a monthly benefit paid to lower income families. The CTC is a tax credit claimed on your annual tax return that lowers your taxable income by a certain dollar amount per child under 18. 

Since the Child Tax Benefit essentially credits you $338 per child in the family, but the enhanced UCCB adds $1200 per year, it is a net benefit to taxpayers with children under 18 living at home. 

All of the above still applies. On aggregate, it will increase the total personal income tax burden of Canadians and increase federal government expenses by a substantial amount. In fact, in Budget 2014, they project growing surpluses over the next four years. This plan is evidence that a budget is only good as those who try to keep on it. This plan instantaneously wiped out almost all the surplus they were on track to record this year. And it spent 50% of the surplus for the next 4 years. Increased taxes and expenditures to give a handout to a small portion of Canadian households. 

I thought tax-and-spend was a Liberal thing? 

And I'm far from the only one to consider this plan economically and politically foolish.

Income splitting and social engineering
Income splitting is bad politics...
Income splitting won't help those who need it
Harper's family tax cut isn't great policy, or good politics
Income splitting: Huge tax cuts for rich families
Wealthy husbands will cash in big time...
7 facts about Harper's family tax plan
Did Ottawa announce a tax increase last week?

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