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Pat Coghlan

Dion should support income-splitting

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The only way Dion has a hope in hell of winning the next election is to make a radical break from the status quo and reform the tax system along the lines of taxation of family income, i.e., enable all families to income-split...not just retirees.

If he did that, I'd even vote for him.

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I don't see Dion going that way. Too imaginative for him.

Well, I know the CPC won't go that way. I wrote to Flaherty a while back pointing out that: a) retirees can income split and B) all families already have their incomes pooled by CRA to determine benefit eligibility. He replied that it's still fair to tax individuals, as far as his government is concerned.

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The only way Dion has a hope in hell of winning the next election is to make a radical break from the status quo and reform the tax system along the lines of taxation of family income, i.e., enable all families to income-split...not just retirees.

Dion was asked that yesterday in Winnipeg about income splitting. He said he much preferred to give a tax credit of $350 per child for families who needed it.

Many have said that income splitting is one of the biggest drains on the treasury of any tax one can do in government. It generally would mean an increase in taxes elsewhere or major cuts in services.

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Dion was asked that yesterday in Winnipeg about income splitting. He said he much preferred to give a tax credit of $350 per child for families who needed it.

Many have said that income splitting is one of the biggest drains on the treasury of any tax one can do in government. It generally would mean an increase in taxes elsewhere or major cuts in services.

That's why instead of a simple-minded split as has been implemented for retirees, there should simply be a set of tax brackets for families which are somewhat wider than for singles (in the US, they are 75% wider, rather than 100% wider).

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That's why instead of a simple-minded split as has been implemented for retirees, there should simply be a set of tax brackets for families which are somewhat wider than for singles (in the US, they are 75% wider, rather than 100% wider).

It would still mean major changes to the tax code and probably dropping something like the child tax credit. The cost to the treasury would still be quite large. It would also be unpopular with singles, especially those who find themselves divorced or widowed.

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The only way Dion has a hope in hell of winning the next election is to make a radical break from the status quo and reform the tax system along the lines of taxation of family income, i.e., enable all families to income-split...not just retirees.

If he did that, I'd even vote for him.

In effect, you want to raise taxes on single people and lower taxes on couples. Why?

Couples can share costs that single people have to assume alone. What about single parents? Should they pay more tax than they do now so that two parents can enjoy lower taxes?

Pat Coghlan, I suspect that you are married and you want to lower your taxes. Please don't present a policy in your personal interest as something good for the country.

OTOH, if you want to sell your vote to Dion, this seems a plausible strategy. Dion might buy it.

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It would still mean major changes to the tax code and probably dropping something like the child tax credit. The cost to the treasury would still be quite large. It would also be unpopular with singles, especially those who find themselves divorced or widowed.

Not as major as you might think. Income-splitting for retirees was achieved with something like one new line on the tax form (income transferred to spouse). Also, over the next couple of decades retirees will represent something like 25% of the population. By then, income-splitting will be widespread. Will singles complain any more than they do now (i.e. not at all)?

I predict it is going to happen, and predicted long ago that it would be seniors that would be the first to lobby for such change. It's just a matter of time. Getting back to the title of this thread, though, this is the only kind of policy shift (forget the carbon tax nonsense) that could get Dion elected. More and more former 2-income families are finding themselves in the 1-income group due to all the layoffs that are going on, and starting to realize that perhaps taxation of family income is a fairer method.

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In effect, you want to raise taxes on single people and lower taxes on couples. Why?

Couples can share costs that single people have to assume alone. What about single parents? Should they pay more tax than they do now so that two parents can enjoy lower taxes?

Pat Coghlan, I suspect that you are married and you want to lower your taxes. Please don't present a policy in your personal interest as something good for the country.

OTOH, if you want to sell your vote to Dion, this seems a plausible strategy. Dion might buy it.

I would like to see all couples with the same combined incomes have identical tax liability, just as they have identical benefit eligibility based on their family income.

Funny you should bring up single parents. I presume you're familiar with the equivalent-to-married exemption, which treats one child as a virtual (zero-income) spouse for tax purposes. I presume you don't have an issue with leveling the tax playing field between these two family classes.

Yes, I am married and have kids (5). Our financial situation has changed a lot in recent years, but for a long time when our family had one (high) income we were treated essentially like a single person with zero dependents, since all our CTB payments were essentially clawed back, which is a totally *&^%$#@!ed up way to run a tax system.

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Not as major as you might think. Income-splitting for retirees was achieved with something like one new line on the tax form (income transferred to spouse). Also, over the next couple of decades retirees will represent something like 25% of the population. By then, income-splitting will be widespread. Will singles complain any more than they do now (i.e. not at all)?

I am seeing singles complain now at various forums. Everyone starts off single and often end single.

I predict it is going to happen, and predicted long ago that it would be seniors that would be the first to lobby for such change. It's just a matter of time. Getting back to the title of this thread, though, this is the only kind of policy shift (forget the carbon tax nonsense) that could get Dion elected. More and more former 2-income families are finding themselves in the 1-income group due to all the layoffs that are going on, and starting to realize that perhaps taxation of family income is a fairer method.

The only reason seniors have it now is because they thought income trusts would be too expensive. What they didn't realize is that income splitting will be even more expensive.

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I am seeing singles complain now at various forums. Everyone starts off single and often end single.

The only reason seniors have it now is because they thought income trusts would be too expensive. What they didn't realize is that income splitting will be even more expensive.

How about this compromise. If the gov't is unwilling to tie the incomes of both spouses together for tax purposes, then untie them for benefit calculations as well. Allow each spouse to claim 50% of available benefits based solely on his/her own income...which may be zero. For example, basic CCTB is something like $1,200/year for 1 child, subject to a 4% (?) clawback for *family* income above $40K. Change this so that each spouse can apply for $600 of the per-child benefit, with the clawback based only on the income of the individual spouse.

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How about this compromise. If the gov't is unwilling to tie the incomes of both spouses together for tax purposes, then untie them for benefit calculations as well. Allow each spouse to claim 50% of available benefits based solely on his/her own income...which may be zero. For example, basic CCTB is something like $1,200/year for 1 child, subject to a 4% (?) clawback for *family* income above $40K. Change this so that each spouse can apply for $600 of the per-child benefit, with the clawback based only on the income of the individual spouse.

That is one heck of a complicated way of doing things. I'm already upset with the Tories and Liberals for going crazy with various tax credit schemes where parents have to figure out if their sport qualifies, whether they can use an education credit or not, the new TSFAs, RRSPs, income splitting for seniors, capital gains on your primary residence and business write offs and the like. The tax code is getting more and more complicated.

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That is one heck of a complicated way of doing things. I'm already upset with the Tories and Liberals for going crazy with various tax credit schemes where parents have to figure out if their sport qualifies, whether they can use an education credit or not, the new TSFAs, RRSPs, income splitting for seniors, capital gains on your primary residence and business write offs and the like. The tax code is getting more and more complicated.

You'll agree then that it lacks consistency, and it would be more consistent to treat both spouses (and their incomes) individually for benefit purposes as well as for tax purposes.

Getting back to the topic of this thread, there is an opportunity for Dion to either level the tax playing field for all families, or introduce some much-needed consistency by treating everyone as individuals for benefit purposes.

If he does neither, he goes down. Suits me just fine.

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You'll agree then that it lacks consistency, and it would be more consistent to treat both spouses (and their incomes) individually for benefit purposes as well as for tax purposes.

Getting back to the topic of this thread, there is an opportunity for Dion to either level the tax playing field for all families, or introduce some much-needed consistency by treating everyone as individuals for benefit purposes.

If he does neither, he goes down. Suits me just fine.

I doubt he is going to tinker much more with the overall structure as policy in this election campaign. My thinking is tax reform needs to start at from the non-partisan level and can't just concentrate on personal income tax changes. It has to encompass corporate, sales and income tax reform.

I'd be happy with that type of commitment from Dion or anyone else.

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Pat, you seem to take this issue seriously.

We discussed it before here.

Here's my opinion.

It has always fascinated me how some people feel that labour in the home should be taxed. In order to have income, there also has to be an expense incurred by someone, no? Is it possible to recognize income without someone *paying* you (wages, interest, dividends etc.)?

Would you tax the unpaid labour of a single person when he/she does housework, laundry, cooking etc., or just in cases where another spouse is involved?

Depending on how you answer the above, we can decide if the spouse that works outside of the home will be allowed a deduction equivalent to the unpaid labour *income* of the at-home spouse, which to me is simply income-splitting and I see no problem with it.

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there is an opportunity for Dion to either level the tax playing field for all families,

If the principle you are proposing is to tax all families wth the same income the same amount of tax, then would you agree that both large and small families with the same income should be pay the same amount of taxes?

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Will singles complain any more than they do now (i.e. not at all)?

Are you suggesting that a group should be targeted for increased taxation depending upon how little they complain?

taxation of family income is a fairer method.

"fairer" for whom? Them, just because they would pay less tax? What is the definition of "fairness" that says that income-splitting is the answer.

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If the principle you are proposing is to tax all families wth the same income the same amount of tax, then would you agree that both large and small families with the same income should be pay the same amount of taxes?

Excellent question. My preference for the longest time is to define tax brackets for a few family *classes* (singles, single parents, couples, couples with children) and tax the family income. All families in the same class with the same income should pay the same amount of taxes.

My answer to your question, though, is no. While I would levy the same amount of taxes on all families with 2 kids and $X of income, I would not tax a couple with 1 child the same as a couple with several children.

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Are you suggesting that a group should be targeted for increased taxation depending upon how little they complain?

"fairer" for whom? Them, just because they would pay less tax? What is the definition of "fairness" that says that income-splitting is the answer.

Simple income-splitting is not the answer, but we should handle tax liability the same way that family benefits are handled. Either tax individuals, and allow each spouse to claim 50% of available benefits based solely on his/her own income, or tax family income.

What is NOT acceptable is to force families to pool income for benefit calculations while preventing income pooling for tax purposes.

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It has always fascinated me how some people feel that labour in the home should be taxed. In order to have income, there also has to be an expense incurred by someone, no? Is it possible to recognize income without someone *paying* you (wages, interest, dividends etc.)?
In theory, we are taxing "effort" when we tax income. Whether you exert effort in paid work or unpaid work is irrelevant.

If that seems confusing, I'll return to the sexist maid story. If she's a maid, she pays tax. If she's a wife, her income is tax exempt. IOW, couples already enjoy now a significant tax break. Coghlan wants to increase this tax break. Is that fair?

----

Pat, if you want to redefine the income tax base by household (instead of by individual), what do you think about child/spousal support payments? Shouldn't they too be based on the household situation rather than individuals? If a divorced father re-marries a wealthy second wife, he should increase his monthly payments to his first wife and children. No?

Indeed, to follow your benefit idea, it seems to me that children receive support within the context of a family/living together arrangement. It makes sense to pay government transfers within that context. We tax individual effort but we support children in families.

I'm already upset with the Tories and Liberals for going crazy with various tax credit schemes where parents have to figure out if their sport qualifies, whether they can use an education credit or not, the new TSFAs, RRSPs, income splitting for seniors, capital gains on your primary residence and business write offs and the like. The tax code is getting more and more complicated.
Amen.

Harper imported these tax breaks from Australia and as far as I'm concerned, they're ridiculous, costly gimmicks. I fear that teh Tories will wrongly believe these tax breaks bought them in part their win in 2006 and so they'll roll out more in this upcoming election. Our tax system will become more complicated and obtuse. Ordinary people will have to collect more receipts. Bureaucrats will have more photocopies to make. There will be more fraud.

----

Since Coghlan wants to reform our tax system, let me drop in here my own proposal:

One: Abolish withholding taxes on income taxes. The government should not have the right to take our money at source. It should send us a bill/invoice and we should pay it, just as we do with everything else.

Two: We should have fixed date elections and the date of the election should always be on the date we have to send our cheque to the government for taxes owed.

More details here.

Edited by August1991

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Excellent question. My preference for the longest time is to define tax brackets for a few family *classes* (singles, single parents, couples, couples with children) and tax the family income. All families in the same class with the same income should pay the same amount of taxes.

My answer to your question, though, is no. While I would levy the same amount of taxes on all families with 2 kids and $X of income, I would not tax a couple with 1 child the same as a couple with several children.

It always amazes me how people with children always think that they deserve to pay less taxes than people without children.

Your children cost our system thousands of dollars per child every single year - and that's just for education.

Now, having said that, I still support your idea, in general: allow for a single bracket/tax rate and another for couples to help reduce some of the absurdities in our current system.

After all, it is hardly "fair" for a single earner of $150,000 per year to be paying more income tax than a dual income family where each spouse makes $75,000 each.

In BC the single earner would pay $47,022 in income tax versus the childless couple who would pay a combined total of $32,732. [i took children out of it because they really aren't relevant, imo]

That gap should be reduced although it could be reduced with something as simple as reducing marginal tax rates at the higher brackets (an option that doesn't seem to be popular with any party as this would benefit the "rich").

[i played around with reducing the tax rates in my tax program and we are talking some serious reductions here. Federally you would have to reduce the 29% and 26% rates down to the 22% rate level and the single dude would still pay over $3,000 more of federal tax than the combined tax of the dual income couple.]

And that is why I'm surprised that neither party would not want to embrace income splitting, at least eventually.

To allow couples to split income (like seniors already do with pension income) effectively reduces the highest marginal tax rates on wealthyish people.

It would be giving a tax break to that band of people between, say, the top 3%-9% of earners (IOW, those in the top 1% or 2% wouldn't really benefit since income splitting would still leave much of their income in the top brackets and top rates whereas individuals earning less than about $60,000, which is probably something like 90% of the country, wouldn't see much of a break since the marginal tax rates are lower anyway).

But there the question is already answered: if these people did see their taxes reduced then there wouldn't be any money left over to bribe that 90% of the electorate in the next election!

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Since Coghlan wants to reform our tax system, let me drop in here my own proposal:

One: Abolish withholding taxes on income taxes. The government should not have the right to take our money at source. It should send us a bill/invoice and we should pay it, just as we do with everything else.

More details here.

So you want the government to hire more government paid (and government efficient/effective) employees so they can somehow measure my income on a monthly basis so they can then invoice me for my taxes?

I'm self-employed so I would be interested to see what method they would use to invoice me.

Sure seems a lot simpler to ask me to pay installments during the year like we currently do.

Or, I suppose you want the government to borrow hundreds of billions of dollars each year, accrue interest on that during the year, and then start the game all over again the next fiscal year as it repays the borrowed funds with the tax revenue it collects from taxpayers on an annual basis and then borrows again to spend during the current fiscal year.

Oh yeah, and while this leads to higher interest costs (which leads to higher tax rates), the government also ends up having more bad debts since now most taxpayers have a tax bill at the end of the year for which they have saved very little during the year to pay. More bad debts means hiring more government workers to collect said debts etc...

Either way I'm suspicious that you just want to see more government workers tell taxpayers what to do.

Edited by msj

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One: Abolish withholding taxes on income taxes. The government should not have the right to take our money at source. It should send us a bill/invoice and we should pay it, just as we do with everything else.
Income tax is due when you earn the money - not on April 30th of the following year. Self-employed people must make quarterly installments based on their estimated annual income or face stiff interest penalties. Corporations must submit their taxes every month. Financially asute people would have no problem making these regular payments, however, many people with less sense would miss these payments and end up paying a lot more in interest. A significant percentage of the population would end up with huge debts to the taxman and would end up having their wages garnished anyways.

IOW - the idea that the government is 'keeping' our money until Apr 30th is a myth.

Two: We should have fixed date elections and the date of the election should always be on the date we have to send our cheque to the government for taxes owed.
We would need to change the parlimentary system first. If a government's budget is voted down we go to the polls and no law can change that.

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In theory, we are taxing "effort" when we tax income. Whether you exert effort in paid work or unpaid work is irrelevant.

We tax *incomes*. That's why it's called *income* tax, not an *effort* tax. Employment income is taxed when it is receive...which is why you pay 2 weeks worth of CPP/EI when you get paid on Jan 2nd of a new year, rather than just 2 days worth. There is no *income* to tax when a spouse does work in the home. The whole concept is nonsense.

If that seems confusing, I'll return to the sexist maid story. If she's a maid, she pays tax. If she's a wife, her income is tax exempt. IOW, couples already enjoy now a significant tax break. Coghlan wants to increase this tax break. Is that fair?

The maid is paid for labour which she makes available at an agreed upon rate which she would not otherwise want (or need) to provide to a stranger. If she doesn't get her wages, she can sue for them.

Pat, if you want to redefine the income tax base by household (instead of by individual), what do you think about child/spousal support payments? Shouldn't they too be based on the household situation rather than individuals? If a divorced father re-marries a wealthy second wife, he should increase his monthly payments to his first wife and children. No?

Child support payments are not taxable (or deductible), thanks to Ms. Thibodeau.

Spousal support (alimony) payments are considered income, like any other, and factor in to the recipient's tax liability as well as the family's benefit eligibility. If we based tax liability on family income, they would be added to the total (and deducted from the payee family's total).

I guess we'd have to see how the US treats support payments in the case of remarriage/change in income.

Indeed, to follow your benefit idea, it seems to me that children receive support within the context of a family/living together arrangement. It makes sense to pay government transfers within that context. We tax individual effort but we support children in families.

Amen.

We support children based on the total amount of family income, without regard for any differences in after-tax income...which can be large.

Harper imported these tax breaks from Australia and as far as I'm concerned, they're ridiculous, costly gimmicks. I fear that teh Tories will wrongly believe these tax breaks bought them in part their win in 2006 and so they'll roll out more in this upcoming election. Our tax system will become more complicated and obtuse. Ordinary people will have to collect more receipts. Bureaucrats will have more photocopies to make. There will be more fraud.

I can't tell you exactly how our system will evolve; only that it must evolve in order to become sustainable. Families are increasingly turning to credit to survive - both in Canada and the US. Savings rates have dropped to negative values. The global financial system is on the brink of a disaster. Families want daycare subsidies so both spouses can have jobs outside the home.

We have inflated our way into a financial mess which will take the next 20 years to climb out of...while *someone* pays to look after millions of seniors in their retirement years. We are going to have to take a good hard look at the kind of population growth that we need/want to stabilize the job market and our economy. I believe that children cannot be excluded from that discussion, and governments will have to decide what birthrate is needed for a stable economy. If the answer is a low birthrate, then stop the subsidies...especially for daycare expenses. If the answer is a medium-to-higher birthrate, then you have to make it possible for more families to have a spouse stay home and look after the kids. As a minimum, that will mean not taxing families in which one spouse earns most or all of the family income at (much) higher rates than families which can split their incomes.

In the meantime, I hope you have a stable job, as the next 20 years are going to get pretty rough.

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