Frances Woolley, writing on the econ blog "A Worthwhile Canadian Initiative", made a post on the practice on "income splitting" currently being considered in Canada. Income splitting is where a married couple can divide their income between themselves to lower their tax rate. Thus, if one partner makes $250,000 while the other makes nothing, they can split their income so that both pay taxes on $125,000, lowering their tax bill because of Canada's progressive tax system. Woolley takes on the three criteria we've learned to consider for what makes a good tax, horizontal and vertical equity and efficiency, and concludes that income splitting is a losing proposition.
What are some of the topics and ideas Woolley addresses that came up in our text? Do you agree that income splitting would be a bad change to the Canadian tax system? How do you think such a system would compare to the US system where couples' earnings are combined and taxed in a separate bracket?
I think that income splitting would have positive and negative effects on people. The positive would be for the couples that could split their income and lower their tax rate. However, this would also generate less revenue for the country. I think that the first thing a country must look at if they want to consider this tax concept is how much less income will the government bring in. I think that it is a good idea as married couples shares everything else, their income could be taxed as shared as well.
ReplyDeleteI think this is just another example of the public being able to take advantage of tax credits/deductions. Both of these have been created to give an incentive for the public to give certain sectors of the economy a boost that it would not have received. Think about the number of charitable donations that exists due to a similar policy. The tax system can be exploited with proper research. It isn't common that people get married because of taxes not love. Income splitting does hurt the government, but the entire basis of marriage is "what's yours is mine, what's mine is yours." Income should be the same way.
ReplyDeleteI guess this is just as much a question regarding marriage as it is income taxes. I do agree with Woolley's conclusion, however, that it really doesn't bring about equity nor efficiency. It's actually somewhat regressive as a single earner of $100,000 has a much higher earning capacity than dual earners at the same level as Woolley states. In line with Woolley, I would advise against it.
ReplyDeleteI agree with TJ on this one. I think income splitting compromises equity issues, meaning it benefits high incomes much more than lower income. In this sense, income splitting does nothing for vertical equity. Moral of the story seems that this is a bad idea, in terms of both efficiency and equity. I think America's tax system is more equitable comparatively, simply because we don't allow income splitting like this.
ReplyDelete