Not Real Tax Fairness

"Flaherty has tried to pass this income splitting proposal off as a "tax fairness" measure, saying that it will "strengthen the social security system" and "significantly enhance the incentives to save and invest for family retirement security." This is really a calculated mis-description of what income splitting for tax purposes will do. First, it is a tax benefit that is only available to couples — single, unattached seniors need not apply. Second, it is a tax benefit that can really only benefit couples with one high income — couples who have two real incomes cannot take much advantage of income splitting because they each already have income of their own. Thus, income splitting will reserve the largest benefits for just one special set of taxpayers — those couples who live on a single high income. Third, the tax benefits of income splitting are completely unlike those meagrely meted out to people living in poverty — the financial value of the tax benefits of income splitting are virtually unlimited: the higher the single income-earner's income is, the bigger the tax benefit will be. For example, taxpayers with retirement income of $140,000 per year could save nearly $10,000 in federal and provincial taxes in just one year by electing to treat half of that income as having been earned by their spouse or partner. Packaged with the new income trust rules and an increase in the over-65 income tax credit as the "Tax Fairness Plan," permitting taxpayers to split their retirement incomes with their spouses or partners is, as Garth Turner put it at a Conservative conference in early October, "a down payment on the Conservative policy, adopted by party members in 2004, to move toward income splitting for all Canadian couples..."Because income splitting can only give tax breaks to those who live as couples, and because it reserves the largest tax breaks for the richest couples, it is the antithesis of "fairness" in terms of the real needs of those who live on retirement incomes."

Kathleen Lahey is professor of law at Queen's University where she teaches taxation and tax policy.


Real tax fairness would be no income taxes on the working class for those earning $100,000 a year or less.



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