When I first heard the details of Harper’s Family Tax Cut plan last month, I felt like Christmas had come early. The plan—which lets parents with kids split their incomes to reduce their taxes, while pumping up the Universal Child Care Benefit and Child Care Expense Deduction—won’t save me a cent, because I don’t have any kids. But I still think it’s the best tax policy to roll out in years. Why? Because the government is finally providing relief to the Canadians who need it most: young families. If they had rolled out yet another plan to cut taxes for seniors instead, I think I would have blown a gasket.
Seniors have enough tax breaks already. These days it’s young families who are really struggling. The myth of the little old lady eating cat food has been around for decades, but it hasn’t been true since the 1970s.
I know it’s hard to believe—when you look at gross incomes for young parents, there doesn’t seem to be a problem. A typical Canadian family with kids and two working parents is hardly poor, pulling in more than $100,000 a year. But as C. D. Howe Institute senior fellow Malcolm Hamilton pointed out at our Retire Rich event on November 1, that high income hides the fact that almost every penny they make goes towards their taxes, their mortgage and their kids. Only crumbs are left over at the end of the month.
Consider the situation my friend Peter is in. He’s 38 years old, married with two young kids aged 1 and 3, and he bought a house in Toronto about four years ago. He and his wife pull in $130,000 a year between them (he makes $100,000 and his wife makes $30,000), so you’d think they’d be well off. But after taxes and fixed expenses, they’re actually living on less than $20,000 a year.
How could that be? Well consider that 23% of their income comes right off the top in taxes. Of the $100,000 that remains, a full $35,000 goes towards mortgage payments (did I mention they live in Toronto?), $20,000 goes towards daycare for two kids, and $14,000 covers car payments, gas, maintenance and parking for two cars (they both commute to work). Plus they’d like to retire some day, so they’re saving $12,000 a year. What does that leave for food, clothes, vacations, toys, and everything else? Just $19,000.
Compare that to a senior couple with a pension income of $60,000 a year. They’re making less than half as much as my friend, but they have the higher disposable income. The seniors paid off their home years ago, so there are no mortgage payments. Their kids left home, so there’s no child care. They don’t commute to work, so they only need one car (which costs $6,000 a year). Plus they’re in a lower tax bracket and they can split their pension income, so they pay only 13% in taxes. After their fixed costs, they have $46,300 left over for living expenses—more than twice as much as Peter’s family.
I know there are rich families with kids and poor ones, as well as poor and rich seniors, and neither of the couples above is really suffering. But if you compare typical middle-class families and seniors with similar incomes, it’s the families who need the tax break.
Those young parents are raising the next generation of Canadians, and right now, they’re shouldering an unfair burden. Harper’s new tax plan for families has serious flaws—it’s overly complex, favours wealthier couples and (most importantly) doesn’t do a thing for me. But it’s a step in the right direction. Our country’s future lies in the hands of those young families with kids, and they need all the help they can get.