Robin Hood In Reverse: The Real Numbers Behind Income Splitting

On March 28th, Mr. Harper announced his party’s latest election plank: the “Family Tax Cut”, or income splitting for couples with children.  The program is supposed to “…make the income tax system fairer…” while recognizing that “…family budgets are stretched…” But an examination of the distributional impacts of the “Family Tax Cut” shows that it neither makes the tax system fairer nor helps stretched family incomes.

In fact, as with most income tax cuts and credits, the largest benefits go the richest Canadians.  Those who actually have their budgets stretched get the least benefit while those that are doing just fine get the biggest breaks.  With income inequality in Canada is already reaching record levels, there is certainly no need to provide additional benefits to the richest Canadians while leaving the poorest behind in the dust.

Table 1 shows the distributional impact of Harper’s “Family Tax Cut.”  What is immediately clear is that this tax cut is anything but fair.  In fact, no family making under $41,000 gets any benefits whatsoever from the “Family Tax Cut,” no matter how they split their income up.  The poorest quarter of all Canadian families, which make $50,000 a year or less, share 0% of the total benefit and will see an average benefit of $20 a year.  Put another way, those half a million Canadian families that are stretched the most would see essentially no benefit from this proposal.

It isn’t only the poorest Canadians who get a bad deal out of the “Family Tax Cut”, middle class Canadians don’t fare well either. The middle 44% of Canadian families with children, those that make between $50,000 and $100,000, only get 39% of the benefit.  In essence, the “Family Tax Cut” steals from the poor and middle class to give to the rich.

At the very least, one would expect that something that is “fair” provides the same amount to all families with children, rich, poor or in the  middle.  However, the “Family Tax Cut” would provide 61% of the benefits to the richest third (32%) of Canadian families who make over $100,000 a year.   The very top 10% of families that make over $150,000 capture almost a third (28%) of this tax cut.

Table 1: Reverse Robin Hood: “Family Tax Cut” Distribution

Family Income Range # of Families with children under 18yr Yearly Average “Family Tax Cut” Savings Cost % of total Families with under 18yr children % of Total Benefit
Under $50,000 628,000 $20 $12 Mil 24% 0%
$50,000 – $100,000 1,105,000 $962 $1,100 Mil 44% 39%
$100,000-$150,000 643,000 $1,393 $896 Mil 21% 33%
Over $150,000 399,000 $1,929 $770 Mil 11% 28%

Source: Statistics Canada, Revenue Canada, Library of Parliament, Author’s Calculations

The Conservative party estimates that the “Family Tax Cut” would provide an average benefit of $1,300 to eligible families.  Strictly speaking that math is correct, it is just terribly misleading. First of all, that only includes families that benefit and 41% of families with kids or 1.1 million families would see no benefit at all either because they are too poor or splitting wouldn’t help.  Second, the benefit is so skewed to the upper end that a family would have to make approximately $135,000 before they got the “average” benefit of $1,300 a year.

Middle class families would get an average of $962 a year and low-income families would receive an average benefit of $20 a year, compared to the annual savings of $1,929 for families earning over $150,000 a year.  Canada’s wealthiest get approximately 100 times more than Canada’s struggling families.

The “Family Tax Cut” is being sold as a helping hand for middle class and struggling families, when it will only further widen the gap between the rich and the rest of us.

For more details on the distribution of the “Family Tax Cut”, please see my the Progressive Economic Forum post.

David Macdonald is a Research Associate with the Canadian Centre for Policy Alternatives

 

20 comments

  1. I don’t see the Robin Hood here. Poor people aren’t paying more as a result of this, in fact, this idea makes perfect sense and is enshrined in the tax laws of many countries, including the United States. Any tax cut will benefit those who make the most the most because those are the ones who pay the most taxes. Wouldn’t the Liberal proposal to increase the regressive GST more of a negative impact towards the poor?

  2. How did you determine how family income was distributed? You need that information to calculate the cost. The Statistics Canada numbers can be used to calculate the cost where one partner has income, but don’t appear to have enough information to calculate the cost for families where the partners both have incomes, but the incomes are unequal.

  3. I tested it on our “unequal” income of $19,000 and $60,000 and the tax savings came out to around $2,000. It seems good to me.

  4. Re: “…low-income families would receive an average benefit of $20 a year, compared to the annual savings of $1,929 for families earning over $150,000 a year. Canada’s wealthiest get approximately 10 times more…”

    That should probably read “…approximately 100 times more…”

  5. John,
    How income is distributed in the family was pulled from the 2007 Library of Parliament document sourced in the post. From its figures for families with children it is possible to determine the number of families that fall into each of the 10% categories. That provides the ratio in each one which can then be applied to the updated census figures.

  6. Chris,
    I suppose the question is if I proposed a program that provided $2000 on average to Canada’s wealthiest families but only $20 to families making under $50,000 and 0$ to those making under $40,000, would that program seem fair.

    I don’t think its a stretch to say that wouldn’t seem very fair, particularly if that is how it is being characterized by the Conservatives.

  7. David:

    Thanks, but unfortunately the link to the Library of Parliament document in the footnote to the table does not work.

  8. In my opinion, if somebody earns more, they should pay more in taxes. With reverse Robin Hood policies like this, pretty soon lower income people will be paying more as a percentage of their income than those of higher incomes!

    This policy does absolutely NOTHING for me as the sole earner of my family with a husband with a disability. Why don’t these political parties start gearing their policies to real Canadians or at least tell me where I can find the $90,000 a year job I can take, so I can maximize these benefits AND be able to pay all of my bills each month instead of staggering them?

  9. There should be help in getting more income for families, not just paying less and less taxes for those that can definitely afford to pay more.

  10. to be a family, does everyone have to live under the same roof?
    ie. does this apply to split up couples?
    do they have to be legally married?

  11. Myna,
    We are talking about economic families here and statscan defines them as: a group of two or more persons who live in the same dwelling and are related to each other by blood, marriage, common-law or adoption.

    So you would have to live in the same place but you wouldn’t have to be legally married, you could be common-law.

    All of the numbers above refer only to families with children under 18yr also living there.

  12. From the Conservative’s page on the plan:

    “Similarly, as the table below illustrates, a two-parent family in which one spouse is earning $70,000 and the other is staying home to raise their children pays almost $2,000 more in federal taxes than two parents earning $35,000 each in an identical household, even though their combined household income of $70,000 is the same. ”

    See this bugs me, the “family” with an earner at $70K who feels they can have 1 parent stay home with the kids is far better off than the family with two $35K earners. Why does this better off family get the tax break?

    The lower taxes the dual 35K family pays is probably eaten up in daycare and transportation costs to get another adult to and from work. Not to mention that 70K/yr jobs tend to be a lot more pleasant than 35K/yr jobs.

    The “unfairness” the conservatives complain about is probably quite envied by that dual 35K income family and they would gladly switch places.

    The old saying about conservatives “comforting the comfortable” comes to mind here.

  13. I can see both sides of the story. It’s all a question of your personal situation and your perspective. I’m out of work so I don’t benefit directly – but my wife works full-time, so as a family we will benefit. On the other hand I totally disgree with the mores of a society that seems to want to continue playing little games to stop me from working, and then hide behind a facade of “political correctness”, aided by stupid but well-paid bureaucrats and abetted by poor-quality but well-paid lawyers to cover it all up.

    Se also my other web site at http://www.unempgeninfo.com

  14. I don’t imagine a family with children who make less than $41k pay much of anything in the way of taxes once all of the credits are taken into account but perhaps I am wrong (having a sub-$40k salary isn’t that far back in my memory and the rate I was taxed at was quite low…and that was without kids)

    It also would seem that the people in the $50-$100k category are getting the best deal here in terms of the size of the break they are getting in relation to the amount they pay each year. As far as I can tell the percentage of their salary that goes to taxes actually improves when compared to those in the higher brackets as a result of this, that is progressive.

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