In today’s National Post there appeared an article written by Claire Brownell that talked about political parties ignoring the single voter. This article featured such glaring errors and omissions that demonstrate a lack of understanding of very simple tax concepts as well as recent tax policies. The author and editor should be embarrassed, and should possibly consider hiring Stephen Gordon to review all their economics pieces.
Here are the simple tax concepts that were glaringly wrong. Here is a one such error:
“They range from deductions for children’s transit passes to the maximum $7,200 Canada Education Savings Grant payment for parents who invest in registered education savings plans. Some are geared to the family’s income, but many are available to wealthy and poor families alike.”
First, neither of these are deductions. A deduction reduces your taxable income. The ‘price’ of a deduction is based on your marginal tax rate. The Public Transit amount is a federal tax credit. A tax credit reduces the taxes you owe and is calculated at 15% (the lowest tax rate) of the value of the claimed amount. Second, this article claims that the public transit amount is just for kids, but that is factually not true. Anyone that incurs the cost of monthly public transit passes or passes of longer duration can claim the credit on their federal taxes. Yes, this includes single people.
The Canada Education Savings Grant is for children, not their parents. Their, ahem, single children. It is to encourage parents to save for their children’s post-secondary education, a cost not incurred by folks without kids. The federal government provides 20% of a parents contribution to the child’s RESP up to a maximum of $500 a year and $7,200 over their lifetime. Again, this grant (not a deduction) is paid to the child’s RESP not to the parent. And when that child withdrawals the money from the RESP, the withdrawal of the non-parental portion is considered to be taxable income in the child’s hands.
Here is another gem:
“For example, based on measures introduced in the latest budget, a couple with a six-figure household income can still receive $160 per month for each child under six through the Universal Childcare Benefit. They can also deduct up to $1,000 per child for fitness expenses, $500 per child for art classes and $7,000 per child for childcare at tax time.”
The Children’s Fitness Tax Credit and the Children’s Arts Tax Credit are not deductions. They are tax credits. I mean you can even tell by their names. Parents cannot ‘deduct’ these amounts from their income. Parents with children who spend after tax money on putting their kids in sports or the arts can claim those costs up to a maximum of $1000 and $500 respectively and garner a 15% tax credit. This means these tax credits are worth $175 and $75 respectively. That is a pretty poor return on the cost incurred, costs not incurred by those without children. As a result, it should not matter to people without kids that they can’t claim these tax credit. (We can of course argue about the merits of these tax credit, as economists do, but that is a separate issue well covered on this blog).
The Child Care Expense Deduction is indeed a deduction, so that is our first example of the tax language used by this journalist being correct. Generally, under Canada’s tax code costs incurred to earn income are deductible from the income earned for tax purposes. This is called the matching principal: it matches expenses with the income generated. So I have a child. To return to the work force, I have to place that child in child care (damn laws!). So to earn that income, I incur the cost of child care, hence I get to deduct those costs. This is tax 101. But I only get to deduct $8,000 (it was increased in Budget 2015) and the lowest income spouse is the one that must deduct the costs. In big cities, day care costs for a kid under 3 run about $20,000-$24,000 a year. The deduction is not as appealing as you single folk think.
And this priceless quote:
“Powers, who is single, says he would like to be able to get a credit for the money he spends on staying fit at tax time, the way families with children can. But he’s not optimistic that will happen any time soon.”
As already mentioned families with children can only expense the cost for their kids to be active (and only certain types of costs). Parents do not have a magical way to ‘get a credit’ for the money they spend on staying fit. So Powers is not missing out on something that parents get. But don’t you worry, Harper has committed to an Adult Fitness Tax Credit, but, gasp, parents will be able to qualify for it too.
So now that we understand the difference between deduction and tax credits and what is a deduction and tax credit, let’s think more rigorously about the tax treatment of families and why. Our tax system looks to ensure that the burden of personal income taxation is apportioned in an equitable manner. How one defines equitable has been subject to some debate, but we have generally reached a consensus that it is based on ability to pay. But total income is often a poor determinant of ability to pay because it is a poor representation of taxpayer capacities to pay. Families with children incur significant costs which impede their ability to pay and these costs have to be acknowledge and represented through the tax system. Ensuring that families have the resources to raise their children to be productive members of society is the reason for the family focus in tax policy.
While there has been some great tax policies in this area, there have also been some pretty stupid ones (like income splitting) and the Harper’s government discourse and actions on tax policy have left a “what is in it for me” philosophy amongst tax payers, and now the singles want their goodies too. I am told by the author of this story it is not enough that singles benefit from a lot of tax cuts that have been enacted, like the cuts to GST, the lift in personal exemptions, the reduction in tax rates, the TSFA, capital gains exemptions rules changes and increases, the small business tax deduction, the WITB, the Public Transit Tax Credit, the Volunteer Firefighter Tax Credit, the elimination of the so called tampon tax, and so on. Nope, instead we need something just for the single folk. What, who knows. This is where the article fell very short.
The discourse we can and should have is whether everyone, singles, couples, and families (however defined) are shouldering the tax burden according to an agreed upon measure of ability to pay. For example, we recognize the cost of kids, but we do not recognize the increased costs of living ‘alone’, with no one to share expenses with, as many married couples do. Of course, many singles do share expenses with roommates and the like so it is a very difficult concept to start to operationalize. We have also possibly created an overly generous tax benefits for couples with children, especially considering the Family Tax Cut and many family targeted boutique tax credits. That, Claire, is what you could have talked about but didn’t, and that would have been interesting.