Income splitting is often portrayed by its opponents as an inexplicable effort to give tax relief to the already wealthy at the expense of everyone else. I think that is an egregious mischaracterisation. The reason for income splitting is that it fixes a terrible unfairness in the tax system whereby similarly-situated (in terms of income) couples pay wildly varying amounts of income tax solely because of how the income is distributed between the spouses. This violates a basic principle of taxation that like should be treated alike. I explain the point in my latest piece for the Globe’s Economy Lab feature in the ROB.
As one of my correspondents pointed out in response to the column, it can be true that income splitting is a correct response to an injustice in the tax system, and yet not be the right thing to choose to do at this moment if you have a spare $2bn or so kicking around at budget time. I absolutely agree. Governing is about choosing and it is perfectly fair to criticise the Tories for having chosen this over the many other things they could have spent the money on. It is still important, however, to lay out the rational case for income splitting and evaluate the policy choice on its merits….
Also check out my Twitter feed for a discussion about why a flat tax would not resolve the issue of the interaction between individual taxation and household tax treatment that income splitting seeks to resolve.
