Fraser lustitute Columnist IMAGINE that four single people, each with a $10,000 annual income, decide to cohabit, and rented a small house. The total income tas bill for 1998 tor the entire group is $2,982 (exclusive of any Provincial tax credits), Now consiler a single earner sup- porting his or her spouse and owo children, making $40,000 annually, and residing in a sim- ilar-sized house. The total tax bill for this family is $8,258, again exclusive of any tax cred- its. In both cases, a group of four people lives in similar accommodation and on the -same combined annual income. Yet the income tax hit is over $5,000 more for the family with the single earners. Is this fair? It is true that the family with children would receive a child tax benefit that would offset some of the difference in the amount of tax cach group pays. However, once the child tax benefit is accounted for, the family with children still pays about $3,500 more in income taxes than the group of single people. Consider a two-earner fam- ily with owo children. One * spouse earns $40,000, while the other earns $30,000. The * family has child care expenses of $10,000 annually tor the ovo children. Each earner pays $5,826 in income taxes (because of income splitting, and exclusive of tax credits) for a total family cax burden of $11,652. Now consider a sec- ond family with a single carn- er, 2 spouse, and nwo children. The emploved parent carns * $66,000, and the total rax burden for this family is $16,037 (again, exclusive of tax credits). Comparing the two families of four, the single-earner fami- ly pays over $4,000 more in income tax, despite having the same amount of disposable family income (after tax and after child care expenses). The problem of the inequitable treatment of sin- gie-earner families by the tax Father’s Day Walk/Run for Prostate Cancer ‘Sunday, June 20th, 1999 Burnaby Lake 9:00 a.m. 6km run ° 3.5 km walk «1.5 km walk IN WIN] 2 . Plus FREE Pancake Breakfast Entry forms are available -at any CIBC branch or Running Room store in the Lower Mainland. . — . Run Hofline: (604) 983-4262 — Burnabynow ‘Working fer Qur Community Global CKRW9S system is Well known. A lot has been writen about the so- called “marriage tay.” A paper published in 1998 by the C.D. Howe Institute entitled Giri Mom and Dad a Break: Returning Fairness to Fauilies in Canada’s Tax and Trangfer System Ww Kenneth J. Boessenkool and James B. Davies. points out thar while the tax treatment of single- earner families is unfair, the administrative problems of switching to a joint filing svs- tem would be significant. As well, rax credits and other sim- ifar social transfers (the “give” part of the tax system) are cal- culated on a family basis, and tend to offset some of the inequities of the “take part, at least tor lower income families. The real problem, accord- ing to the authors, is that the expense of raising children is not recognized within the tax ortified Organic system. Children are treated like consumer spending. There is currently no tax deduction for children. The authors pro- pose that the government Institute a universal child deduction of about $2,000 per child, and reduce the child care expense deduction by an equal amount. They suggest thar this would be the most feasible way to restore some horizeatal equity to the tax system. They estimate the cost to the federal government for doing this would be about $3 billion annually. Ifwe take the case of the single-carner family with pre- tax Income of $60,000, the tax burden would fall to $14,362 under the Boessenkool/Davies proposal. The dual-carner fam- ily with the same disposable income would pay $13,153 in income taxes due to the reduc- tion in the child care expense chim, The differential between the nvo families is now only $1,209. This is clearly much fairer but it is important to note that this proposal aticets only couptes with children. The Canadian tax system should not penalize (discrimi- nate against, really) single- earner families with children. Choices about whether one spouse or both spouses should be emploved are profoundly personal matters thar the state, with few exceptions, should stay out of. This is not to sav that both choices are equal from the point of view of child care, The evidence is clear thar, other things being equal, voung children are best served by one parent staying home to care for them, The sad fact is thar, currently, che state does penalize this choice. To the extent thar the state continues to rely on income Eaxes as a major source of rev- enue, proposals such as Boessenkool’s and Davies’ are welcaine, However, ane old idea that has some attraction as a way of avoiding income tax inequities is the consump- . tien tax, There are 2 number a varia- tions. However, the essential idea is that people would be taxed on their spending and not on their income. The eco- nomic advantages are that it is likely to promote saving, and will signiticandly reduce tax avoidance and the “hidden econoniy.” It is not a cure-all, but is easier to justify on “fair- ness” grounds than the cur- rent income TaN system. — Chris Sarto teaches eco- nomics at Nipissing Universiry in North Bay, Ontario. He is the author of Poverty in Canada, published &y The Fraser Tastitute. rice CHOICE. Great Taste & So Nutritious New Fortified Organic ESS. is made naturally from certified organic brown rice and is refreshingly light and tasty in both the Original and Vanilla flavours. Fortified with 7 essential nutrients, it is an excellent source of Calcium, Vitamins A, D and B,2. Of course, it's lactose and cholesterol free as well as low in fat. Try it chilled or hot, on your cereal or with fruit - it's incredibly: convenient. OF nese 12 Tice CHOICE. 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