Stephen Harper’s unequal income splitting scheme for wealthy families explained in 3 graphs

Stephen Harper’s Conservatives have a plan to reward Canada’s wealthiest families and exacerbate inequality — it’s called income splitting.

That’s the main finding of a new report released Tuesday by the Broadbent Institute titled The Big Split: Income Splitting’s Unequal Distribution of Benefits Across Canada.

“If the government set out to specifically design a policy to make inequality worse, this would be it,” says Rick Smith, the Institute’s Executive Director. “This policy is an inequality generating machine.” 

Here’s how income splitting works: if a spouse makes X amount and the other spouse makes Y amount, the spouse that makes more money can transfer part of their income (if they earn a big salary) to the lower earning spouse (or stay at home spouse) for tax purposes.

To be the biggest winner in this $3 billion tax giveaway, the top earning spouse would be in the top income tax bracket (earning at least $136,270) and their spouse would be earning no money. The study found that fewer than 2% of families with children under 18 fit into this category.

Here are three graphs that explain this unequal payout:

1. Most people in Canada won’t see any benefit from this

Unattached individuals, single-parent households, low-income families and families with two spouses that earn similar incomes would receive no benefit from income splitting.

So who really benefits? “Higher income families with a traditional family model of one breadwinner and a stay at home spouse,” the study finds:

2. It’s an unfair tax cut that helps rich families get richer

The majority of families that are the express target of the Conservative proposal — couples with children under 18 — would see no benefit whatsoever. Two out of three such families would get less than $500 out of income splitting while 3.7% of these families — among Canada’s wealthiest — would get over $5,000: 

3. The benefits aren’t evenly distributed across Canada

The study finds that families in Alberta and Saskatchewan would stand to be the biggest winners from income splitting while families in Quebec would be the biggest losers.

Only 7.4% of families in Quebec with children under 18 would receive a benefit of $2,000 or more, compared to 22.8% in Alberta and 19.5% in Saskatchewan. Nationally, only 13.8% would see this kind of benefit:

Photo: x-ray_delta_one. Used under a Creative Commons BY 2.0 licence.