Income splitting turns up again
So Peter Dunne has, again, stated that he is trying to bring up income splitting for tax purposes (ht Dim Post).
Now, we’ve discussed this before, over two years ago. Our primary point was:
If we then view individuals as the appropriate economic unit, income splitting seems un-equitable. By allowing income splitting we are giving a tax advantage to those in a relationship versus those that are not … something we should only be willing to entertain if there is a positive externality associated with that household structure.
I didn’t realise it was governments role to promote a certain family unit – sounds a little like social engineering to me. But I digress.
Eric Crampton brings up important points regarding marginal tax rates – something I was aiming to mention, but now don’t really have to. His main point is that this policy will, in places, increase the MTR’s on second income earners (who are very responsive to taxes in terms of labour supply) and slightly reduces it for main income earners (who are relatively unresponsive in terms of their labour supply).
I would add that, to keep tax income sufficient for the level of spending (so assuming tax neutrality) we would need higher marginal tax rates on some section of households who aren’t this ‘standard unit’ Peter Dunne is targeting. So their incentive to supply labour will be lower – and their tax burden will in fact be higher.
SO, the only way to support the policy, really, is if you believe that there is some external benefit from having households form in a certain way – that is an argument I wouldn’t be willing to make, so I genuinely dislike the policy.
Update: Frogblog also dislikes this policy. Fundamentally, I believe that we agree that treating the household as the economic unit rather than the individual is not going to be conducive to optimal tax policy. I would also like to point out that there are people who support the policy in the comments – and they are good comments from the other side, so if you like read them (and my corresponding replies). My key point is that, yes there are situations where we would want to do certain things – but this seems like a ninth best solution, rather than any type of sensible, reasoned, and targeted policy.
Update 2: The Standard also attacks the policy. But I would note that if you don’t think the current tax system is equitable, these numbers would just reinforce the point that some earners are currently paying “too much” tax rather than saying a change would be unfair. This is why we need to discuss the allocation issues from first principles, rather than relying on the change from status quo per see.
Update 3: No Right Turn is also against on the grounds of discrimination on the basis of family status.
But Dim Post said economists would like it! You damn economists: always sneaking out of that rightie pigeonhole I put you in.
@Matt: Exactly.
@rauparaha: Dim just had it wrong. The policy doesn’t benefit the very highest earning families. Two earner families both earning the top marginal rate – it does absolutely nothing for them. That’s why I’m against it, deep down. Principle has nothing to do with it.
Aaarrrgghhhh. Why am I always seeming like a crazy lefty.
One generally accepted principle of a good system is neutrality – there aren’t incentives to rearrange your affairs to avoid tax.
Under the present scheme parents may make the choice to both work and raise kids not because they want to but just to minimise tax. Changing that would mean they make decisions about what they prefer/makes the most sense, rather than what is tax advantageous.
So I think you can argue for it on the basis of efficiency.
Another level is fairness. That people in similar positions should pay similar tax.
Here a value judgement comes in. If we think that raising children is no different to breeding cats or being into model boats then we don’t need to change things. But if we believe it’s okay that the Government recognise having children as a common part of the average human experience, then there is a fairness issue.
We tax people according to their ability to pay. We tax people with higher incomes proportionately more because they have a higher ability to pay (we make the value judgement that the necessaries are relatively fixed). So if we accept that people with children have a lesser ability to pay (given that children also need ‘necessaries’) then it is fair that a couple with children would pay less tax than one without.
I totally agree though that this is a value judgement.
@Robbie
“Under the present scheme parents may make the choice to both work and raise kids not because they want to but just to minimise tax. Changing that would mean they make decisions about what they prefer/makes the most sense, rather than what is tax advantageous.”
Currently they make the choice to supply their individual labour on the labour market on the basis of the prevailing wage they receive – which is a function of the tax system.
If we have a progressive tax system, then the party that earns a lower income pays a lower tax rate – so are you saying that a secondary earner should just pay the same tax rate as the primary earner in a household?
In truth, if we want to target a “household” why aren’t we doing it directly through subsidises instead of indirectly through the tax system – oww wait, yes we already are. So what the frik are we even thinking about this for 😉
“So if we accept that people with children have a lesser ability to pay (given that children also need ‘necessaries’) then it is fair that a couple with children would pay less tax than one without.”
If we believe that people who have a kid deserve a subsidy then we should give them a subsidy, not arbitrarily frik around with the tax system.
If we think there is some external benefit, or some “value-ladden construct of what constitutes fair”, then in either case the best policy targets them directly – rather than making the tax system more convoluted on an arbitrary basis.
Umm, aren’t we already giving pretty big subsidies to folks with kids? Or have we started charging tuition at primary school?
@Robbie
“Aaarrrgghhhh. Why am I always seeming like a crazy lefty.”
How does supporting this policy make you sound like a lefty?
Supporting progressive redistribution to poor individuals and households would make you sound like a lefty – supporting a society built up with single-earner “traditional” families just makes you sound like a conservative mate 😉
It is interesting, I’ve noticed that with this – and with compulsory super – there is a very different divide than the traditional “left v right”, with people on both sides fighting each other.
@Eric Crampton
The main point is “more subsidies please” – let us not forget that Peter Dunne is a sensible centrist …
Matt, the problem with your objection is that the current system already has those kinds of distortions – they will always exist in a progressive income tax system, no matter which way you cut it.
I’m the single income earner in our family, and the only one among our group of friends. Everyone else is a two-income household, not surprising given the incentive to minimise their tax that way.
I can think of no reason why I should be paying more tax than if me and my partner were sharing the same job. Our ability to pay would be no different – the cost of providing for a family would be the same. I can’t imagine we would be consuming any fewer public services under such an arrangement.
You complain about the government promoting a certain type of family unit – the current system actually punishes people for choosing such a unit.
As for revenue neutrality, I doubt it would require increases to other tax rates. More likely they’d peg back Working for Families, which if done right would mean reducing distortions rather than creating new ones.
@Miguel Sanchez
“Matt, the problem with your objection is that the current system already has those kinds of distortions – they will always exist in a progressive income tax system, no matter which way you cut it.”
Yar, people with volatile incomes get taxed more than people with stable incomes. It sucks. IMO, it is an issue that needs to be shown to people objectively – but switching the unit of taxation from the individual to the “traditional family unit” isn’t the solution we should be looking at.
“I can think of no reason why I should be paying more tax than if me and my partner were sharing the same job”
Because you and your partner wouldn’t be sharing the same job. That isn’t the counterfactual. As I will get to later, the choice to set up a family unit is a choice by a set of individuals – and this is the point that is important for me here.
I don’t disagree that progressive taxation is awful at targeting what the government often wants to target – which is why they should be transparent discussing that, rather than arbitrarily cutting tax rates for single earner “traditional” household types.
“As for revenue neutrality, I doubt it would require increases to other tax rates. More likely they’d peg back Working for Families, which if done right would mean reducing distortions rather than creating new ones.”
So they would doubly reduce the incentive for second earners to stay in the labour market – interesting 😉
I have one big problem with setting up part of the tax system to target a “family” unit rather than an “individual unit” – it is inconsistent. Family types are set with by choice, by individual agents, given the structure of the tax system – the appropriate “agent” of choice is the individual.
As a result, we should tax the individual, send income transfers to the individual, and focus on the individual – then when people want to set up whatever household type they want they just can.
If we are desperate to set up a household type – or think the “welfare system would be abused” in this case, then have a direct subsidy. None of this “lets make it that people can split the tax” rubbish.
Jesus. Dunne thinks it’s a feature, not a bug, that it would push women back into the kitchen.
http://offsettingbehaviour.blogspot.com/2010/08/its-not-bug-its-feature.html
@Matt Nolan
“Yar, people with volatile incomes get taxed more than people with stable incomes. It sucks.”
But that has nothing to do with my point.
“switching the unit of taxation from the individual to the “traditional family unit” isn’t the solution we should be looking at.”
What do you mean “switching”? Benefits, for one, are already paid on the basis of the family unit (and rightly so – or would you rather see stay-at-home mums with rich husbands receiving full benefits?). It’s the income tax system that’s inconsistent here.
“Because you and your partner wouldn’t be sharing the same job. That isn’t the counterfactual.”
Okay, let’s say the counterfactual is that my partner finds a job that earns half my current pretax income, then I halve my income by deciding to work 2 1/2 days a week (once you’re in the top income bracket you find employers are quite flexible about these things). Exactly the same result, but without the brevity.
“Family types are set with by choice, by individual agents, given the structure of the tax system – the appropriate “agent” of choice is the individual.”
Exactly. So why the contempt for people who freely choose to form a single-income household? Just because it happens to be the “traditional” unit (your word, not mine) favoured by Charlie Churches like Peter Dunne?
As for “putting women back into the kitchen”, tell that to my partner. Not working means that she’s basically a lady of leisure – and I already pay for that privilege. 😉 That’s her choice, and I don’t see why she should be pressured into getting a job just because it’s more tax-efficient.
“If we are desperate to set up a household type – or think the “welfare system would be abused” in this case, then have a direct subsidy.”
We already have those; I’m not eligible for them. Nor would I argue that raising the thresholds is a long-term solution – what a left-wing government can giveth, a right-wing government can always taketh away. I’d rather not be beholden to a government trying to score points by mucking around with benefits. Just get the tax system right.
I should add that I don’t like Dunne’s bill as it’s written – there’s no reason why it should be limited to couples with children, as they have no bearing on the issue of fair treatment for single vs double income households. The heart of the matter is: why should two households, with the same gross income (ability to pay), and the same outlays (use of government services), pay different levels of tax? What are the grounds of fairness? Where is the value in the implicit social engineering that’s going on here? The standard arguments for and against progressive taxation simply don’t apply here.
@Miguel: Start thinking at the margin. The folks who’ve already decided to be single income, no matter what, will be given a transfer. The folks who’ve already decided to be two income, no matter what, will have a small tax cut if they’re on different marginal tax rates.
But there are some folks who are considering switching from one to two income, or vice versa. The tax change is likely to affect that marginal decision pretty substantially.
And listen to what Dunne said in his touting of the policy: he argued it as a strong plus for the policy that it would encourage more folks to go single income. That’s distorting choices at the margin. I have absolutely no problem with folks choosing to go single income; I have a big problem with subsidizing them to do it.
But the current setup subsidizes people who choose to go double-income. As I said right from the start, you can’t win under a progressive tax system. I’m just hoping that you and Matt realise how deeply silly it is to strongly support one inequity over another on the grounds of ‘fairness’.
Also, can you guys quit with the hand-wringing about falling participation rates. I can’t think of a single economic model where success is measured in, or relies on, a higher participation rate. We already have one of the highest rates in the world*, and what has throwing all that manpower at the economy done for us in the last decade?
* When calculated on a like for like basis. For some reason we count the over-60s as part of the working age population, and their participation rates are understandably very low – only we and I think the US calculate it that way. Our comparable rate is more like 77%, rather than the 68% that’s reported. Helen Clark’s constant misinterpretation of these figures is one of the big reasons we have this legacy of policies trying to force more women into the workforce.
Miguel: Please explain to me, slowly, what subsidy I’m drawing from you by my wife’s decision to be in the workforce.
Oops, got my terms mixed up in my excitement. The current system penalises single-income households – relative to job-splitting households (they pay more tax) and relative to the same two people living apart (the non-earner has less access to benefits). Please explain to me, slowly, the fairness aspect of this, no-one has attempted it yet.
I’d love to see some stats on “job splitting” to know whether this is anything that comes close to being worth worrying about. How many two-earner families have both folks working 20 hours each in the same job? Is it even a full percent? Half a percent?
As for fairness, I’ll stick to the areas where I have some professional competence. Economics, incentives, that sort of thing. Fairness I’ll leave for folks over in the philosophy department.
@Miguel Sanchez
Ello,
“But that has nothing to do with my point.”
It was me agreeing that people get arbitrarily hurt by a progressive tax system – I was showing another example of where this happens, people with volatile income.
“What do you mean “switching”? Benefits, for one, are already paid on the basis of the family unit (and rightly so – or would you rather see stay-at-home mums with rich husbands receiving full benefits?). It’s the income tax system that’s inconsistent here.”
No, it is the benefit system that is inconsistent 😉
The individual is the appropriate unit when looking at choices, not households. People choose to form households – it is the wrong target.
“Exactly. So why the contempt for people who freely choose to form a single-income household? Just because it happens to be the “traditional” unit (your word, not mine) favoured by Charlie Churches like Peter Dunne?”
I don’t have contempt for them – I just don’t understand why they have to get special treatment as a form of household. Remember people CHOOSE to form this type of household – the relevant unit of taxation is still the individual. I can understand the inequities that accidently stem from a progressive tax system – but that is an argument for removing progressivity and introducing targeted benefits, not messing around with the tax system.
In fact, as I point out in a post today single earner households already get a sudsidy as their “household service” isn’t taxed.
“We already have those; I’m not eligible for them. Nor would I argue that raising the thresholds is a long-term solution – what a left-wing government can giveth, a right-wing government can always taketh away. I’d rather not be beholden to a government trying to score points by mucking around with benefits. Just get the tax system right.”
Screw the thresholds – have a minimum payment to everyone and dump all the other assistence, outside of true targeting (disabilities and the such). The benefit system should be targeted at the individual just like the tax system is.
Income splitting incentivises setting up your affairs so you look like a single income household in order to reduce your tax burden – I don’t like policies that frik around with incentives on household formation. You could say that progressive taxation lowers the incentive to have a single income household – and that is fine.
But then I’d say that the issue is progressive taxation – and dealing with that directly would be easier and more efficient than arbitrarily fiddling the tax system to help only ONE of the groups that is disadvantaged by it.
“Please explain to me, slowly, the fairness aspect of this, no-one has attempted it yet.”
Why would we explain “fairness”. The benefit system is about fairness – the tax system “should” be about raising required revenue at the lowest cost.
There is a fairness aspect you raised, which I agreed with. I simply disagreed that this tax fiddle was the best way to deal with it.
@Miguel Sanchez
“But the current setup subsidizes people who choose to go double-income.”
Reading through the comments again, I think the main disagreement does come from the view of the appropriate “unit”.
And I have to say it is the individual – the individual makes choices, the individual is the one supplying labour.
Why should an individual who earns 80k be treated differently because he is married than when he is not? This bill treats these two people differently on the basis of martial status – which is a relatively arbitrary bias.
If you have a problem with two people earning 40k paying less tax than one person on 80k you have a problem with the ENTIRE progressive taxation system – not just the married person element. This is a potential inequity that exists throughout the entire system – so why institute a policy that only cleans it up for ONE set of people.
@ Matt
“I didn’t realise it was governments role to promote a certain family unit – sounds a little like social engineering to me. But I digress.”
It is exactly Government’s role to promote certain family units.
Surely in essence, any given Government is a manifestation of a society’s values.
Nothing wrong with a little well considered ‘social engineering’. Given the shrill denunciation from the Reds, you would think Dunne had said “but homosexuals need not apply”.
Folks seem to forget that without today’s kids, there are no tomorrow’s taxpayers.
Disclaimer: Breadwinner with one offspring. No great fan of Peter ‘Family Values Worm’ Dunne.
@Matt
Just on the economic unit thing… the question I imagine you’d ask is whether people make decisions and respond to incentives together or separately. I’d suggest with married couples (who often have pooled assets and accounts) there is no strong distinction. Sure some de
facto couples do this too and marriage is an arbitrary distinction.
“Reading through the comments again, I think the main disagreement does come from the view of the appropriate “unit”. And I have to say it is the individual – the individual makes choices, the individual is the one supplying labour.”
I think you’re right. My assertion is that for couples the decision is a shared one, rather than individuals deciding independently. Naturally the balance between independence and integration will differ for every relationship.
“If we have a progressive tax system, then the party that earns a lower income pays a lower tax rate – so are you saying that a secondary earner should just pay the same tax rate as the primary earner in a household? ”
Yes I am. If a group behave as a single unit, surely any part of that unit should face the same incentives?
“In truth, if we want to target a “household” why aren’t we doing it directly through subsidises instead of indirectly through the tax system – oww wait, yes we already are. So what the frik are we even thinking about this for”
A point well made. In fairness my argument was more theoretical than practically rooted. Given WFF my fairness argument doesn’t carry (but the incentives bit does).
Finally, a point very well made that domestic services aren’t taxed. I think it’s fair to argue that the value of tax on these services would outweight the rebate from income sharing in most instances so you could accept the status quo.
@Eric
I’d love to see some stats on “job splitting” to know whether this is anything that comes close to being worth worrying about. How many two-earner families have both folks working 20 hours each in the same job? Is it even a full percent? Half a percent?
Another point well made. If this isn’t a problem then I agree there’s no point messing with the policy.
@Gregor W
“It is exactly Government’s role to promote certain family units.”
I suppose this is one descriptive element we will have to completely disagree on 😀
“Surely in essence, any given Government is a manifestation of a society’s values.”
This is true in part, government is an institution that is formed to help represent the true will of the people. I just find it hard to reconcile an active mandate to promote a certain family unit with the general will of the people – it could well be the case, but that doesn’t stop me feeling uncomfortable about it.
“Folks seem to forget that without today’s kids, there are no tomorrow’s taxpayers. ”
My main response to this would be “so what”. This has nothing to do with future taxpayers or any such rubbish – this has everything to do with what we are trying to accomplish with the tax system, as a way of raising revenue and “maybe” promoting what we think is fair.
People have kids because they have kids – that is nice. We already subsidise this significantly, because society seems to believe there is some great “external value” from such things – that is nice as well. But do we really need to sit around and continually introduce policies that represent “the proper family unit”.
I don’t know – I think I’d prefer it if individuals actually learnt to think and act like individuals – and respond to incentives as such. If I’m honest, I’d prefer it if we provided subsidies for people to see psychiatrists then subsidies to have kids – we’re worried about the nature of the household, lets do something to make sure parents are sane rather than randomly subsidising people having kids 😉
@Robbie
“Just on the economic unit thing… the question I imagine you’d ask is whether people make decisions and respond to incentives together or separately. I’d suggest with married couples”
No – but I do see exactly what you are pointing out. I’ll try to flesh out how I feel, and why I think the individual is the relevant agent.
Individuals make decisions – their partner influences their decisions. It is like a firm, the individuals in a firm make decisions, although their choices have an impact on the choices they make.
So having your partner bring home income they share with you does change your choices – but it doesn’t stop the fact that you are the individual making the decision. In fact, the person chose to be in the institutional surrounding where you are sharing income in the first place.
So ultimately, for some reason you have put yourself in a situation (institutional surrounding that is the given household) where the costs and benefits you face are different – this is still a choice. Furthermore, as an individual you are still making the choice regarding whether to supply labour or stay at home. The person making the decision at the margin is the individual – so they should be the focus of underlying policy.
And yes, I am a full on methodological individualist – which is why I’m like this …
@Matt Nolan
Ref, tomorrow’s taxpayers;
“My main response to this would be “so what”. This has nothing to do with future taxpayers or any such rubbish – this has everything to do with what we are trying to accomplish with the tax system, as a way of raising revenue and “maybe” promoting what we think is fair.”
I would suggest that what what we are trying to accomplish with any system of taxation is a better and more productive society. Revenue is not raised for revenue’s sake by the State (at least one would hope not).
It is immensely shortsighted to exclude potential future benefits (tangible or otherwise) from the discussion.
I guess my question would be, what specifically would you like to ‘accomplish’ within a tax system?
“People have kids because they have kids – that is nice. We already subsidise this significantly, because society seems to believe there is some great “external value” from such things – that is nice as well. But do we really need to sit around and continually introduce policies that represent “the proper family unit”.”
Very general statement. We (including me) subsidise numerous sectors of the economy based on all sorts of criteria, hidden and open. I would dispute your somewhat glib supposition that the ‘value’ of a household is ‘external’, essentially incidental and driven completely by free agency rather than biological or cultural imperatives; maybe from a purist economic sense in terms of utility, but surely not from a societal one.
What a strange, dry world you live in. Does your bum get sore on that Ivory Tower? Do your lungs ache from sucking in great lungfuls of rarefied Chicago School air? (kidding!)
We subsidise all sorts of things via tax redistribution in this country, so why not treat the family in some respects as a form of capital formation? 🙂
“I don’t know – I think I’d prefer it if individuals actually learnt to think and act like individuals”
I totally agree, but we don’t live in that world. We live in the reality of hip-pocket politics, hot-button punditry and middle class anxiety.
“lets do something to make sure parents are sane rather than randomly subsidising people having kids”
Social engineering maybe? 😉 How dare you discriminate against mad people having kids or or suggest subsidising the head shrinking quack fraternity!
I would also suggest that the proposition is not a ‘random’ subsidy (unlike the DPB). It is clearly aimed at working parents who are currently financially disenfranchised.
@Gregor W
“I guess my question would be, what specifically would you like to ‘accomplish’ within a tax system?”
I would say “what are we trying to achieve with our spending decisions”. Given that, we then want to raise revenue at the lowest cost using a tax system.
“We (including me) subsidise numerous sectors of the economy based on all sorts of criteria, hidden and open.”
We have a preference for different sectors of the economy as individuals – an institution like government would preferably have a reason for subsidising that is rooted in economic theory or a moral judgment. In either place these should be clear rather than arbitrary.
“We subsidise all sorts of things via tax redistribution in this country, so why not treat the family in some respects as a form of capital formation?”
But why should we? Just because we can doesn’t become a justification for doing so. And if the “capital formation” is fully internalised by the people doing it – why would we subsidise it in the first place?
“It is clearly aimed at working parents who are currently financially disenfranchised.”
Financially disenfranchised? Do we really need more middle class welfare?
This is a relatively arbitrary policy IMO, and I agree that large areas of the tax system are arbitrary – but surely the goal should be to fix them rather than to increase the degree of randomness 😉
I’m sorry but your argument appears to be “we can give money to these households so why not” – I would say a more appropriate question is why?
@Eric Crampton
“Jesus. Dunne thinks it’s a feature, not a bug, that it would push women back into the kitchen.”
Which is far worse that outsourcing childcare?
http://www.theonion.com/video/report-many-us-parents-outsourcing-child-care-over,14146/
@Hefe: It’s not the kitchen that bugs me, it’s the push.
The offshore outsourcing solution does sometimes seem tempting though.
@Matt Nolan
“I would say “what are we trying to achieve with our spending decisions”. ”
Fair point. Maybe that is the nut off the issue. Not semantics about what form a family group but what issue is intended to be remedied by the proposed change.
To me the issue is clear though; the opportunity cost of raising children in a one income family and attempts to resolve the tax in-equability.
“We have a preference for different sectors of the economy as individuals – an institution like government would preferably have a reason for subsidising that is rooted in economic theory or a moral judgment. In either place these should be clear rather than arbitrary.”
I should have been clearer here. I meant the larger ‘we’ rather than the personal.
I agree with your sentiment that the decision should be rooted in economic theory or (gasp!) moral judgement. The whole point of this proposition is that it is absolutely a moral judgement (back to the ills of social engineering again) and quite possibly, sound in terms of longer term economic principles. Whether or not the issue has been clearly positioned as such with the public should absolutely be challenged however.
“Do we really need more middle class welfare?”
I’m not sure I consider this welfare when the bulk of the tax was gathered from the base it is being returned to. More of a rebate for an excessive imposition?
Overall, I can’t agree with your supposition that this is arbitrary. Maybe I am missing something but to me this policy has a very direct focus; middle class working families (a fair proportion I would guess are United Future and the Nats constituency) and redressing some of the taxation imbalances they are currently subject to. Piecemeal maybe, but not arbitrary.
“I’m sorry but your argument appears to be “we can give money to these households so why not” – I would say a more appropriate question is why?”
A fair question. Back to my original post, I would suggest that tax policy can and should be used an extension of social policy. If the Government of the day wishes to promote what it sees as desirable behaviour or social model, in this case externalising some of the short term costs of raising kids within a family unit for what could be positioned as longer term benefit (i.e less financial strain on households, more rapid capital formation within them, various intangibles related to the family dynamic etc.) and can convince the electorate that it is a sensible idea, then that is reason enough.
@Eric Crampton
“I’d love to see some stats on “job splitting” to know whether this is anything that comes close to being worth worrying about. How many two-earner families have both folks working 20 hours each in the same job? Is it even a full percent? Half a percent?”
Like Matt, you’re taking an overly literal reading to avoid answering the question. I’m talking about households who split the workload between them – it’s irrelevant what the split is.
“As for fairness, I’ll stick to the areas where I have some professional competence. Economics, incentives, that sort of thing. Fairness I’ll leave for folks over in the philosophy department.”
This is a simple matter of why two households, with the same level of gross income, and the same outlays, should pay different tax rates. I didn’t realise that economics professors had to defer to the philosophy department on questions of basic math.
If you only understand incentives, then try this: thanks to the current tax system, I have a financial incentive to cut back my working hours, and deny my wife her freedom of choice by pressuring her into work. I also have a financial incentive to force her to move out, because she’ll be financially better off living as an individual. Why should that be?
@Matt Nolan
“No, it is the benefit system that is inconsistent”
No it’s not. For instance, I can reduce my individual tax by gifting to another individual economic unit – a trust. I can also reallocate my taxable income through an LAQC, another economic unit. If you want to fight this based on maintaining the purity of the tax system, you’re too late matey.
“But then I’d say that the issue is progressive taxation – and dealing with that directly would be easier and more efficient than arbitrarily fiddling the tax system to help only ONE of the groups that is disadvantaged by it.”
So if you can’t fix every aspect of it, you’d oppose fixing any one aspect of it? Sounds a bit defeatist.
“This bill treats these two people differently on the basis of martial status – which is a relatively arbitrary bias.”
It’s not arbitrary. In principle I’d support income splitting between flatmates, as long as one flatmate CONSENTS to having the other freeload off them. Somehow I don’t think there’s much danger of people rorting the system that way.
I get that you’re all about freedom of choice for the individual. But then you argue that people should be forced to act as individual units, which kinda defeats the point of freedom of choice.
The fact is that the current tax system creates a penalty for people who choose to arrange their affairs in what is a common and uncontroversial way – as a single-income household. Income splitting is not a ‘subsidy’ as you and Eric keep insisting – it is the removal of a disincentive. With income splitting, couples would be free to allocate their work and leisure between themselves without being stung by the tax system for certain choices. I can’t see why you’d be against it.
@Miguel: Do check the Auditor General’s note on Bill of Rights issues to check for cases where he reckons splitting leads to pretty strong unfairness.
@Hefevice
@Eric Crampton
I love that video – but I’m not really sure why we need government to “promote” either as a policy target.
@Gregor W
“To me the issue is clear though; the opportunity cost of raising children in a one income family and attempts to resolve the tax in-equability.”
If the issue is one of “external benefit from children” then we should subsidise children directly methinks.
“redressing some of the taxation imbalances they are currently subject to. Piecemeal maybe, but not arbitrary.”
Fair point. However, if the “tax imbalance” is stemming from the fact we have progressive taxation, then there are other groups of people feeling the same issue – in that case shouldn’t we be looking at changing the nature of the tax system to redress this imbalance, rather than just helping out one group.
“Back to my original post, I would suggest that tax policy can and should be used an extension of social policy”
Personally, I think the distinction between tax for revenue gathering and social policies needs to be clearer – which is why I favour putting all redistributionary policy through benefits.
However, this is a bit of a side-step. Even if we continue to redistribute the way we are I think we need to recognise that if it is “unfair” for a household to pay higher tax with a single earner than dual earners we must also believe it is “unfair” among individuals – this seems like a critique of the entire progressive tax system – not a call for a fiddle.
@Miguel Sanchez
“So if you can’t fix every aspect of it, you’d oppose fixing any one aspect of it? ”
I am against moving AWAY from simplifying the tax system and improving it – which is what income splitting is indicative of 😉
“I get that you’re all about freedom of choice for the individual. But then you argue that people should be forced to act as individual units, which kinda defeats the point of freedom of choice.”
All men are born free, yet everywhere they are in chains. Fundamentally, I think the relevant unit for policy is the individual. If we have a problem with two individuals that earn the same cumulative income as one getting taxed proportionally less then we have a problem with the progressive tax system – so lets look at that instead.
“I can’t see why you’d be against it.”
As I’ve said, because it is a change in the tax system that specifically changes the way individuals are treated based on their household status. It is the individual that supply’s labour, it is the individual that makes choices, they are the unit of taxation.
When it comes to redistribution, sure we can think about the household unit if we want to do something – then at least we can target directly through the benefit system.
Eric: glad to see you are qualified to discuss fairness after all. How about a link? My googling has turned up nothing useful so far.
Check Matt’s link to No Right Turn, above. I’m not talking about fairness; I’m pointing to somebody who does.
Thanks Eric. The AG’s objections seem to be about the definition of parents – as I’ve already said, I don’t agree that this should be limited to couples with children. But that’s a problem with the bill as it’s written, not with the principle of income splitting.