Finance Committee on Oct. 21st, 2014

[Prof. Jennifer Robson]

There are about 9.4 million families of two or more people. Of those, about 672,000 are single male earners, and they have a median income of about $40,000. Income splitting won't do anything for them either, because they're already in the lower tax bracket. There is nowhere further for them to go.

It's not only that it doesn't do anything for single-parent families, it's also that it doesn't do an awful lot for the families who may only have a single earner but two parents and are the ones who are actually struggling.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

How about for parents, say, in the middle-class bracket but earning similar amounts of money, somewhere in the same tax bracket range? How does income splitting benefit those families?

[Prof. Jennifer Robson]

If you compare and contrast, for example, a family with two income earners, both making $40,000 for a combined family income of about $80,000, income splitting leads to about a $5,000 federal—federal alone—tax cut for them. This is my back-of-the-envelope calculation.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

For the couple making $40,000 each?

[Prof. Jennifer Robson]

For the couple making $40,000— Sorry, for a one-income earner family—

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

My question was for the first example that you used of a couple, each making $40,000 to $50,000.

[Prof. Jennifer Robson]

They get nothing out of income splitting either because they're already both in the lowest tax bracket. But if you compare to one-income earners making $80,000, they would benefit.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

So the—and I hate this term—“traditional household” where you have one spouse either earning a great deal more than the other, or a household in which there is no income being earned by one and an income being earned by the second, that's the target of this tax measure.

[Prof. Jennifer Robson]

Even within that target, you have to have sufficient taxable income for that earner to be able to drop a bracket or more.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

So if there is only one earner, that earner has to be earning quite a bit in order to realize--

[Prof. Jennifer Robson]

Yes.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

--and the more you earn, the better the benefit goes. Is that not correct?

[Prof. Jennifer Robson]

Yes.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

So for someone making $150,000 to $200,000, as some folks in Parliament or in Cabinet do, and the other making nothing staying at home, the higher you go up the scale, the greater the benefit.

[Prof. Jennifer Robson]

Yes, because of the way that our progressive income tax system works.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

That's fascinating.

A number of developed OECD countries are seeking to increase productivity and to increase particularly women's participation in the workforce. This is particularly identified for those countries that don't have a large or a growing natural growth population. Some countries are spending inordinate amounts of money in order to do that.

This is to Ms. Woolley, or to you, Ms. Robson, if you have information on this. What has the experience been like with just the child care program that's been brought into Quebec with respect to women's participation in the work force?

[Prof. Jennifer Robson]

I think perhaps I'll turn to Frances.

[Dr. Frances Woolley]

Basically, anything that reduces the cost of child care will increase female labour force participation. That's a very, very robust finding.

I should also say that there are two issues; one is the cost of child care, the other is the availability of child care. Both dimensions affect labour force participation.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

And labour force participation is one of those indicators that we use to describe the health and robustness of an economy?

[Dr. Frances Woolley]

You framed the question in terms of economic growth and so on. When there are more people working the national income will be higher.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

I want to come back to income splitting for a moment. Ms. Woolley, in one of the pieces you submitted to committee—and I'm going to quote you back here—[...] economists agree: tax reductions should deliver improvements in equity, or efficiency, or both. Income splitting does neither.

Can you break that statement down a little bit for me, please?

[Dr. Frances Woolley]

When you're looking at efficiency, really you're looking at the marginal tax rates. Income splitting does raises the marginal tax rate faced by the lower-income spouse. What we know is lower-income spouses are most likely to be women, and women are more responsive. They are more sensitive to changes in the tax rates so their labour supply is more easily distorted, and that's where there are efficiency costs.

I know Jack Mintz is in favour of income splitting, but he really is pretty much a lone voice among economists.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

Very quickly to understand what that sensitivity is, your suggestion is if it becomes more incentivizing to be out of the workforce than in, the secondary income earner, the lower-income earner is more likely to be sensitive to that change.

[Dr. Frances Woolley]

Well, sure, as soon as the second earner goes into the workforce, those tax savings from income splitting are lost, and so that raises the effective tax rate. When you have higher tax rates you have efficiency costs.

[The Chair, Conservative, James Rajotte]

Thank you.

Thank you, Mr. Cullen.

We'll go to Mr. Keddy, please.