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% |
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
