Campbell Clark
Income splitting is bad politics for Stephen Harper, and it looks like he knows it.
It's not like other targeted tax breaks the Conservatives have introduced. This one can win a few votes – but in the process, turn off most of their target demographic.
That explains why the announcement of this particular tax cut has been drowned in other measures, notably the expansion of those baby-bonus cheques the government pays to parents. The Conservatives can now say every parent will get money. That's important, because they will have to forestall resentment about who gets more.
The income-splitting measure has been rolled out, as much as possible, as a dog whistle hidden buried in a lot of noise about family-bonus cheques. Those who will save big – single-income families with children – will know about it, and, Tories hope, be motivated to vote for it. Those who might be annoyed by it – dual-income families – will be encouraged to forget about it, and think about the family bonuses.
Just look at what Finance Minister Joe Oliver said when he was asked about income splitting: "You have to look at this package in its totality."
Income splitting allows one parent to transfer income to their spouse for tax purposes, so that it can be taxed at a lower rate. It's a big deal for single-income families where one parent stays at home. Because that parent usually doesn't have other income, they can pay little or no tax on a sizable sum. But it doesn't do much for most two-income families where both parents work.
The Conservatives promised it in the 2011 election, but made it conditional on balancing the budget. In the meantime, it became clear that it would provide a huge tax break to a small group of affluent Canadians – and that meant it would be a big liability in next year's election campaign. So Mr. Harper's government decided to cap the tax break at $2,000.
But you can bet it's still going to rub many parents the wrong way.
If you are a parent in a single-income family, chances are that income-splitting seems perfectly fair to you. If your family has an income of $90,000, you probably think it shouldn't matter if it is earned by one person or two. A lot of Conservatives MPs who back this measure think so, too.
The opposition parties, the NDP and the Liberals have argued it's unfair, highlighting the fact that it does nothing for single parents, who would have to pay more tax than a single-income couple with the same income. But there's a bigger group who probably won't like it: dual-income couples.
Most families have two parents at work. And dual-income couples usually don't feel like they're both working to make a social statement. They're doing it to make ends meet; when they've had periods with one income, it usually wasn't by choice. Many, we can guess from the levels of household debt in Canada, feel like they're struggling.
And you don't need a study to know that working parents with a spouse at work and young kids at home often feel like they're struggling to find time, to take care of work and kids and home. They're not likely think the couples with one parent at home by choice are the ones who have it tough. They're more likely to resent the government giving single-income families a tax break.
The Conservatives knew income-splitting was going to make many people grumble. That's why they packaged it together with goodies that all parents will get: an increase in the monthly payments to parents of children six and under, and an expansion of those payments to parents of older children.
Now that everyone gets money, won't dual-income parents accept a scheme that gives them some money, but gives single-income couples more? Some will. The question is how many. The family-bonus cheques actually give an extra after-tax benefit to single income families, too. And when it comes to paying taxes, the sentiment that someone else is getting an unfair break is a powerful force.
That's a danger for the Conservatives. Those struggling dual-income parents are Mr. Harper's target market, the people who "work hard and play by the rules" that he spoke of during the 2006 campaign that brought him to power. In an election that will in large part revolve around which party offers some kind of solution to Canadians' economic concerns, Mr. Harper can afford to let those parents think he's given them short shrift.
Campbell Clark