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‘Family’ tax cut will miss most families: Plan favours wealthy households over those who need tax relief

The Times Colonist By Elisabeth Gugl 8 April 2011

On March 28, the Conservative party issued a press release with the headline “Harper announces the Family Tax Cut: Families with children under 18 will save $1,300 on average.”

But the average Canadian family will save far less. In fact, the release modifies this statement later in the text stating, “The Family Tax Cut will provide significant tax relief for almost 1.8 million families who will save, on average, $1,300 per year.”

This is not the same as saying that the average Canadian family will save $1,300.

Statistics Canada counted more than 4.7 million families with employment income in 2007. This number includes more than 900,000 lone-parent families, the second largest group after two-parent families with two earners (almost three million).

Two-parent families with a single earner (about 600,000 with a male and around 200,000 with a female single earner) are the smallest in number.

Who are those 1.8 million families that would see a family tax cut?

It may come to a surprise, but a majority of twoparent families with a single earner will not benefit.

In 2007, at least 50 per cent of the single-earner families had employment income that was too low to benefit from Harper’s proposed tax cuts. I suspect the same will be true four or five years from now when the family tax cuts might take effect.

If the policy were to take effect immediately, any single-earner family with taxable income of $41,544 would not benefit.

Lone-parent families will not benefit either. So that’s more than 1.3 million families that will not benefit from tax cuts of more than $2 billion.

Who are those 1.8 million families who would benefit? They consist of singleearner families with taxable income higher than $41,544 and some of the almost three million two-earner families, including my own family.

Even among the families that benefit, the amounts by which they will lower their tax burden vary widely.

The highest tax cuts of $6,408 would go to families with a single earner making a taxable income of $178,800 or more.

Compare this to singleearner families with a taxable income of $100,000 who would save $3,585 and single-earner families with taxable income of $60,000 who would see savings of $1,292.

Dual-earner families benefit whenever the spouse with lower taxable income makes less than $41,544 and the spouse with higher earnings makes more than $41,544. For this category of families, tax savings can be as low as seven cents.

There will also be savings for two-earner families in which the spouse with higher earnings makes more than $83,088 and the taxable income of the secondary worker is lower than $50,000. Here, savings can be as low as four cents.

So the higher the family income and the lower the secondary earner’s own taxable income, the higher are the tax savings.

A majority of families would not see any savings and yet a minority of 1.8 million families would save $1,300 on average because of the huge tax cuts to rich families.

I have a great life. I have a husband and two daughters, and a job that I like and that pays well. As a member of the upper middle class, I don’t need tax relief, and neither do the couples earning more than my family.

Elisabeth Gugl is an economist with the University of Victoria whose research is in public finance and microeconomic theory. Her papers on income splitting have appeared in the Canadian Journal of Economics and the Canadian Journal of Women and the Law.