The split that unites

Income splitting a political winner for Tories, Liberals

A government that robs Peter to pay Paul can always count on the support of Paul, remarked George Bernard Shaw.

Conversely, a government that lets Peter keep as much of his hard-earned cash as possible should be able to count on his vote.

That was Stephen Harper’s winning calculation in 2006 when he cut the GST and handed out a $1,200 a year childcare allowance.

And we already know that it will be central to his strategy in the 2015 general election, where all three major parties will be scrapping to win the support of the Dodge Caravan-driving Peters, Pengs and Paramvirs in the suburbs.

The Conservatives said in the last election that they would allow income splitting for families with children under 18, so that the income tax system recognizes total family household income, instead of each individual’s income. The public gives politicians about five seconds before they’re bored — for tax economists make that two seconds. But if in that time, you can tell them you’re about to make them $2,000 better off, you have a reasonable chance of grabbing their attention.

Under the status quo, a couple with a single earner making $70,000 pays $2,000, or 30%, more than a couple with two earners each making $35,000. A single earner bringing in $120,000 a year pays the same income tax as a dual earning couple making $141,000. The Conservative proposal would change that, with one study suggesting 9% of households would benefit by more than $500 a year.

The policy has the added benefit for the Tories of allowing them to position themselves as the “family party,” making it more affordable for one spouse to stay home and raise children.

Since all three parties are chasing the middle-class vote, you might think the opposition parties would be falling over themselves to hijack the Tories’ income-splitting tax policy.

But the NDP’s appeal to suburban Canadians will be to their better angels, rather than to their pocket-books. They view income splitting as a tax break for high-income families, which to some extent it is — higher income families pay more taxes, so under income splitting they will receive a bigger tax break.

Yet, it also provides a big saving to many people who would not consider themselves to be high-income earners.

The Liberals are said to be flirting with the idea, but have run into opposition from their own base, particularly women who see it as just another way to keep them home and create a gender bias in the workforce. This tension between electoral politics and principle may become a recurring theme for new Liberal leader Justin Trudeau moving forward.

If Mr. Trudeau does decide to adopt the policy, he may get some cover from a new paper released Monday by the University of Calgary’s School of Public Policy. Matt Krzepkowski and Jack Mintz have come up with a suggested tweak that might make income splitting more palatable to those who argue it is unfair (because stay-athome parents provide untaxed work that should result in a higher tax burden), and discourages secondary earners from re-joining the workforce.

The Krzepkowski/Mintz solution is to simultaneously restrict the transferability of the basic tax exemption that single earners are currently able to claim on behalf of their stay at home spouses — an exemption of $10,822 of income in 2012. “We argue that couples choosing to split income should be unable to transfer the basic exemption as well.”

As well as making income splitting fairer, it would have the added incentive for political parties of making the reform cheaper for the treasury. Mr. Mintz suggested the cost of income splitting would be close to $2-billion a year when fully implemented — about $500-million less than previous government estimates — and could be phased in over a number of years.

It would be a major shock if income splitting is not included in the 2015 budget, when the Conservatives will balance the budget, come hell or a high jobless rate.

It will be an even bigger shock if the Liberals don’t eventually plump to offer income splitting too. To do otherwise would allow the Tories to challenge the elector at e: Vote for us or lose your income-splitting gains.

More proof, if any were needed, for H.L. Mencken’s crack that every election is an advance auction sale of stolen goods.