Income splitting no help for most families

Opinion By: Paul Kershaw; The Daily Courier (Kelowna)

Finance Minister Jim Flaherty has urged caution about Ottawa’s family income splitting plans, observing what the evidence makes clear: it doesn’t provide tax breaks for the majority.

Income splitting offers no help to couples in which both parents earn similar amounts. Nor does it help lone parents.

Even for families with a stay-at-home parent who will benefit, income splitting saves about $1,088 for breadwinners who make average earnings.

Does an extra $1,088 per year really make it affordable for a parent to remain home with a young child when faced with the decision to work less, or not at all? The answer is no – $1,088 doesn’t compensate for the fact the typical young couple in 1976 earned $65,360 after adjusting for inflation, often on one salary.

Today, the median income for one-earner couples with kids is about $42,000 when the earner is male, and $25,000 when the earner is female. Clearly $1,088 will not come close to closing this gap. The only thing that will is a second income.

And second incomes generally require thousands of dollars in annual expenditures for child care.

Behold the burdens of Gen Squeeze. Compared to when Boomers were rearing their kids, parents today must give up time at home that is worth thousands in child care and domestic work, or give up thousands in employment income. And having forgone these thousands from their standard of living, regardless of which decision they make, Gen Squeeze families pay housing prices that are nearly twice as high as a generation ago.

No tax cut can bridge this generational gap in the standard of living. Fortunately, the New Deal for Families proposed by Generation Squeeze can.

Under our plan, New Mom and New Dad Benefits would inject about $15,000 into the home of an average one-earner couple during their child’s first year.

Thereafter, the benefit plan gives the family more choices, offering the primary breadwinner (often the dad) the opportunity to afford six months at home when the child is 12 to 18 months. When dads take advantage of this time, moms are more likely to re-establish their ties to the labour market. Should a mom choose to remain in the labour force once her child is older than 18 months, even if just for a day or two a week, $10/day fees for quality child care services will mean that families keep far more of this extra income….

And it will dramatically improve access to part-time preschool experiences for their kids at an affordable $7/day.

For families that count on two earners, the New Mom and Dad benefits would inject approximately $15,000 after tax when couples split a year at home with a child age six to 18 months. Thereafter, flex-time changes would invite dual-earner families to trade some earnings from about four weeks of employment to gain 22 additional days at home with their kids.

For most families, there will be little or no after-tax reduction in their disposable income because $10/day child care will save thousands in fee expenditures to compensate for the reduction in wages….