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Federal Politics

Income Splitting: So Divisive It's Splitting the Tories

Why Harper's going 'Mad Men' retro with his $3-billion tax gift to social conservatives.

Andrew Jackson 12 Feb

Andrew Jackson is senior policy advisor at the Broadbent Institute.

Discouraging women from working outside the home is surely not an appropriate goal for tax policy. But that may just be the motivation behind the Harper government's plan to introduce "income splitting" for families -- an expensive tax gift to traditional families with one breadwinner and a stay at home spouse.

The gift is already proving costly to Conservative party unity. The Harper government's own finance minister is speaking out against the policy that would deprive the treasury of tax revenues while benefitting mainly big earners.

But Minister Jim Flaherty is up against social conservatives in Tory ranks who built income splitting into the party's platform.

So why is income splitting so problematic that it's splitting even the party that proposes it?

It starts at the top, with Stephen Harper, who has long been haunted by the spectre of a hidden social conservative agenda.

The latest budget has set Harper up to make good on his promise to introduce income-splitting once the federal budget is balanced next year. As various studies have shown, this tax change would be immensely costly at almost $3 billion in lost federal government revenues, and it would mainly benefit a very narrow subset of families (a mere 14 per cent according to the CCPA) -- mostly affluent single earner families with a stay at home spouse.

Call it Harper's $3-billion Mad Men giveaway. Income splitting would allow families to share up to $50,000 in income for tax purposes. This would benefit some couples by more than $6,000 per year in cases where one partner (usually a man) is in a high income tax bracket, and the other partner (usually a woman) has no or low earnings. There would, however, be no benefit at all for single parents (who account for more than one in four families with children), and very little benefit for couples where both partners work, but are both in one of the lower tax brackets.

Why would the Harper Conservatives put so much emphasis on a tax scheme that would worsen growing income inequality and foreclose spending some $3 billion on needed programs and services that would benefit all Canadians?

Alms for Evangelicals?

Part of the answer lies in the very close ties between the Conservative government and religious and social conservatives which have been documented by Marci Macdonald and Dennis Gruending, among others.

Evangelical Christian institutions in particular had close ties to the Reform Party and have maintained and even increased their influence on policy under the Harper Conservatives. They have lobbied for a so-called pro-family agenda, including opposition to gay rights, opposition to abortion rights, and, more successfully, policies to support the traditional family with one earner and a stay at home spouse.

Despite the fact that both partners in the great majority of today's families with young children choose to participate in the job market, or have little financial choice but to work, the Harper government scrapped plans to establish a national child care program after it took office, replacing it with an inadequate cash benefit paid out to all families with young children.

And while the Conservatives talk of the importance of promoting real choices for families with young children, they have done nothing to expand access to or benefits of maternity and parental leaves under Employment Insurance that would allow parents to care for children at home longer.

Meanwhile, social conservatives have organized through advocacy organizations and used their very close links to the Conservative caucus and to the prime minister himself for changes to the tax system to support traditional families. Notably, many of their proposals call for tax support for stay at home parents of all children, and not just pre-school children.

As far back as 1999, the Reform Party minority report to the House of Commons Finance Committee on taxation of families called for tax measures to "give parents... greater freedom to spend more time parenting and succeed economically while doing so." Many social conservative witnesses called for consideration of family income splitting at the Committee hearings, including REAL Women of Canada and Focus on the Family.

Pushed from far-right fringe

REAL Women of Canada is an avowedly conservative women's movement that has led the charge for family income splitting since at least the mid 1990s. They are a profoundly anti-feminist organization that also supports anti-union laws, and oppose public child care, abortion and same-sex marriage.

In a 2012 pamphlet titled "The Importance of the Family," REAL women argue the case for tax changes to support the traditional family with a stay at home spouse, usually a woman.

"Although there are serious financial disadvantages to single-income families, ie. decreased disposable income, there are, nonetheless, some important emotional and sociological advantages for such families, and, in the long-run, for society. That is, when one partner (either the mother or father) is the sole provider, energy can be directed by the other partner to full-time parenthood. This allows for complete attention towards the nurturing of the children and assists the family by creating values, faith and traditions, which are more readily achieved by this close family arrangement. Healthy families ensure the future of mankind."

British Columbia-based Focus on the Family Canada has also taken the lead in advocacy of tax measures to support the traditional family. They have links to the major American evangelical Christian organization of the same name and, according to journalist Marci Macdonald, received $1.6 million in services from the larger American organization between 2003 and 2006.

Focus on the Family Canada's mission is to "encourage and strengthen the Canadian family through education and resources based on Christian principles"; and its guiding principles include the preeminence of evangelism, the permanence of marriage, and the sanctity of human life. Like REAL Women of Canada, Focus on the Family Canada has opposed a publicly delivered national child care program, same-sex marriage, and gay rights in general (including the right of gay couples to adopt children.) It is anti abortion and promotes spanking in the interests of child discipline.

Focus on the Family Canada recently established the well-funded Institute of Marriage and Family Canada/Institut du Mariage et de la Famille Canada (IMFC), just as the Harper government took power. Located in Ottawa to influence the national policy debate, its mission is "to positively influence public opinion and promote public policy that values human life, the pre-eminence of marriage and the institution of the family." Ministers Stockwell Day and Jason Kenney spoke at the gala launch of the IMFC in 2006, according to Marci Macdonald.

The IMFC actively promotes income splitting, including through a major report it commissioned from well-known University of Calgary economist Jack Mintz in 2008. The core of their argument is "that (individual taxation) makes it much more difficult for one of the parents to stay at home to raise children or spend time doing voluntary work. Ultimately, high taxes imposed on single-earner families drive people to make choices that they may not wish to make. It is an important social issue, too, given Canada's falling birthrate and ageing society."

Reform Party roots

Focus on the Family and the IMFC in particular have had very close connections to the Reform Party, the Harper Conservatives, and the conservative Manning Institute which seeks to establish a broad tent uniting social conservatives and economic liberals.

Take the example of three individuals associated with the Manning Institute:

1) Darrel Reid was president of Focus on the Family between 1998 and 2004. Prior to that he had been director of policy and research for the Reform Party and chief of staff to Preston Manning as Leader of the Opposition. Subsequent to his work with Focus on the Family, he joined the Prime Minister's Office, rising from senior policy roles to become deputy chief of staff to Prime Minister Harper in 2009. He left the PMO in 2010 to become the executive director at the Manning Institute. 2) Dave Quist worked for Harper as operations manager when he was Leader of the Opposition. He became the founding executive director of the IMFC, which he left at the end of 2012 to become vice president of the Manning Institute.

3) Paul Wilson was appointed as director of policy and then acting chief of staff in the Harper PMO in 2012. Another former assistant to Preston Manning and Stockwell Day in the days of Reform and the Canadian Alliance, Reid has served as an executive assistant to cabinet ministers Diane Finley and Vic Toews.

Wilson is the former coordinator of the Laurentian Centre in Ottawa, which was established by Trinity Western University, mainly to place student interns in Ottawa jobs, especially with Members of Parliament. Trinity Western University is an avowedly evangelical institution which embraces social conservative values.

Real choices over right-wing deals

The key point here is that there are very close connections between senior Harper government policy advisers, and religious and social conservative organizations that want to use tax policy to help restore the traditional family with a stay at home spouse. That is likely a major reason why family income splitting looms so large on the Harper government agenda.

Not to be misunderstood, families with young children should be supported if they choose to have one parent stay at home for a period of time. Maternity and parental leaves make an important contribution to this goal, as do decent child benefits for lower income families. Both could and should be improved.

But the social and religious conservatives are less interested in promoting real choices than in promoting a traditional family model in which women are expected to stay at home for extended periods to care for children. That is why they not only call for tax measures to subsidize stay at home parenting, but also oppose government spending on badly needed childcare services.

And that is likely why Finance Minister Flaherty exposed a rift in his Conservative Party when he said of income splitting: "I'm not sure that overall it benefits our society."

No it doesn't. Canadian families deserve better.  [Tyee]

Read more: Federal Politics

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