Why the kids aren’t alright

The Family Tax Cut is the best tax policy to roll out in years despite serious flaws

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by

From the December 2014 issue of the magazine.

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(JGI/Jamie Grill/Getty Images)

(JGI/Jamie Grill/Getty Images)

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.

14 comments on “Why the kids aren’t alright

  1. I agree that families need the extra help (rather than seniors), but Harper’s plan does nothing for single parents, or for two-parent families where both parents are working at or near minimum wage. A far better, and fairer plan would have been a day care plan such as Quebec’s (either under the original fixed cost, or the proposed sliding scale of fees). Quality day care at an affordable price benefits more families and boosts employment.

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    • @D.B.
      While your comments may be true of the income splitting option, that is missing at least half of the picture of the tax cut package. Regardless of income or number of parents in the household, everybody will now get an additional $720 per year, per child in child benefits, and that goes all the way until the end of high school for your children. Particularly, this helps lower income earners even more, because they will pay less tax back on that money. Additionally, allowing an extra $1,000 deduction per child for childcare expenses can additionally bring in a further $250+ for a low-mid income earner in the family. It will be hard for many families to max out the $2,000 in savings from income splitting, but a family with two kids (especially a low income earner and a single parent), can reap nearly that entire $2,000 with the other two parts of the program.

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  2. No matter how you try to sugar coat the situation, the couple in your example has $100,000 per year to budget, and it is their decision on how to allocate the money towards the type of lifestyle they want to keep. For example, there are many people who use public transportation, car pool, or single car owner, hence eliminating majority of the $14,000 car-related expenses. The fact that they are able to pay $35,000 on mortgage also indicates these people are living in a house that is or close to half of million dollars (how can you call this struggling?)! These people are “struggling” because they decided to live above their means, and choose to have a luxury living condition, which is a typical example of rich people crying their diamond shoes being too tight.

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    • Have you looked for housing in Toronto? I have travelled Ontario and found quite a number of ok $30,000 3 bedroom homes not on leased land. But you don’t know their interest rate and have no idea of where they live.

      My question is why does the wife work? I see this a lot. In which child care + car + ins, gas etc+work clothes+ misc = more then they make. If you are going to have children stay home with them. Check the math on expenses. You are losing money by working. And your job is not more important then your children’s first 4 years.
      J in Peterborough

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  3. Doesn’t this discourage work? I know at least 3 friends who are planning to have their wives stay home next year. This is damaging to the nation’s economy, making Canada less competitive, while benefiting upper-middle class families the most. It does nothing for single parents who need it most.

    How are young parents need money most? Economists have long known that parents get paid about 8-11% more than non-parents for the same amount and quality of work. This is further discrimination towards single people especially women who earn 25% less to begin with.

    If the idea of tax break is to help children, the government should spend it on public works such as state-funded daycare centre, credits for daycare or after school programs. That way, the money really goes to benefit children in a positive and lasting way, while parents (mostly women) are encouraged to work.

    The tax break is offered because people will notice money in their statement right away, just in time for 2015 federal election. If this proves popular, I fear that we will forgo more public works in the future in favor of tax breaks.

    Please don’t compare seniors to young parents. That’s the deal about pension, you contribute when you are young and you reap the benefits when you are old. Younger people are suppose to pay more tax for pension system to work.

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  4. 130,000 a year. Come on now. Let be realistic and talk about real families who bust their butts for crappy wages and work 50 hours a week to rent a crappy town house in a crappy part of town who also have to pay their childcare bills because they say that a two person income at under 50 grand a year makes too much money to get any help. If I was bringing in 100 grand a year I sure as hell wouldn’t be complaining about it.
    As for helping those on Ontario work? Ummm honestly a lot of those people should have jobs. Their are temp agencies etc. Even at a part time job would be a lot better then doing nothing. Ontario works is supposed to be a short term solution to help people in need of help. I know people who sit on it for years even after their kids have grown to an age where they are old enough to care for themselves while these adults decide us lower income families should pay to raise theirs. It’s bullcrap.
    so no offence but you friends that pull in 130 grand a year should learn how to budget better because those of us who make crap money still manage and let me tell ya, I get a total of 340 dollars a month from the government and that’s only because I have a child with a disability. They do nothing for us at the lower end of the income bracket even when raising a child with special needs. So for us to feel sorry for Mr and Mrs. 130 grand. Ha sorry no sympathy there. Give me a break.

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  5. This analysis is shortsighted. I would like the editor of a magazine I subscribe to faithfully to do a more thorough investigation. Your second-last paragraph completely undoes any line of reasoning you have established in the rest of your letter. Your example applies to, at best, 10% of young couples. What of households where income is split more evenly? What of seniors not living on the whopping $60 000 pension you use as an example? MoneySense should take the bull by the horns and look at all sides of a policy which has been deemed unfavourable by people of many different political stripes: A true indication it needs to be rethought.

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  6. This article is one view of the legislation and speaks to one particular demographic and I am delighted to see that aspect of the legislation discussed. I suspect it is a very common demographic among the readers of this magazine. Most of the commentary I have seen in other general publications has discussed the shortcomings of the legislation (there are many) but I was glad to see one article discussing some valid points. We were very disciplined savers all our lives and now enjoy a comfortable retirement with the many perqs granted to seniors. However, I look at my offspring who are earning good salaries as professionals but who are living in the Toronto area and are far from flush due to huge cost of living issues in the GTA and I know they need the perqs much more than their parents do at this stage of their lives.

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  7. Funny how “analysts” always use the example of a family where one spouse (the man, of course) makes over 100K while the other has a near minimum wage job. The reality is often quite different. My children and their friends are mostly in the category where both parents earn about the same. E.G. one spouse earns 75K while the other has a 55K income. Not much in it for them and they have the same financial constraints. While the family in the example would be considerably better off if the wife stayed home (as pointed out by others), a couple where the incomes are more equal do not have that luxury. Use real examples and stop tailoring them to suit your political perspective!

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  8. If the lower income spouse stayed at home to look after the 2 children, there is 20K saved, along with s spouse tax break available… and 2 cars??? We had to think of our children first and one of us was home until the children were 7-8… AND mortgage payments totalling 35K… it looks like they are trying to live the life of Reilly… that is almost 3 grand a month… they! I would love to be a real estate agent with their circle of friends! We have always lived within our means and paid a weekly mortgage AND any work bonuses went towards the principle… AND our total income was closer to 50K … It looks like it is a keeping up with the Jones’s syndrome to me

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  9. Wow. I can’t believe this was even allowed to print. It really shows the amount of work and research this author did. Seniors are living on $60,000. a year of pension. Where did that come from? Is that in Canada? C’mon I work in the financial area and most are barely scraping by on their CPP and it’s not too bad if there’s 2 of them to share expenses but when there is only one they are living below the poverty line. And if their home is paid off they still have the same expenses of heat and hydro and property taxes ( which are low in Toronto by the way ). Try paying the property taxes in the GTA for a mediocre house. You’re looking at $400. A month. Geeeez lets give every one a bit of a break on taxes. Don’t penalize us for not having children or being single or old. Make it fair. Otherwise we’re just attracting people to come here and take advantage of our system while we keep working for next to nothing pay because we don’t want to bring children into our world just for the sake of tax advantages and to live for free. There are plenty that come here and have children and then sit at home and wait for their cheques. Way to go Canada!!! Before you know it we’ll be on the list of third world countries.

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  10. Please come down from your ivory tower and realize that the great majority of young people today are unable to afford to get married, let alone have children. The overwhelming debt from student loans and exorbitant tuition fees and expenses as well as high rental and food costs is making it impossible to consider taking on the responsibilities involved in raising a family , especially considering they are being paid wages that keep them far below poverty level (in many cases no wages or benefits for 24/7 hours leaving no time or energy left to seek better conditions.) We have created a generation of almost slaves since the destruction of unions – caused by overly greedy corporate power seekers and even a few greedy union leaders.

    As a senior I fear for our future because so many of us are using up our savings and future inheritance money to help keep our families stable, while the wealthy pundits tell us the younger generation should be saving for their own retirement! With what, oh Mighty Dragons? Or is it Sharks now? Whatever these sharp toothed, self centred, smooth talking monsters are calling themselves these days, they had better learn some compassion for those who just want to help the world by doing a good job for a fair, liveable wage and benefits, or our civilization may be doomed. I sincerely hope they learn to care for their fellow humans soon, aside from the convenient self glorification of charity donations and short sighted sermons.

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  11. Looking forward to the tax breaks! Raising 2 kids in sports with a stay at home mom is overly taxing.

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  12. can,t see the forest for the trees.are you asleep,split income was recognized as only helping 15% and they were high earners,he only expanded it when caught,also split pensions/ 2/3 of canadians do not have a private pension,cpp splitting has been around a long time. just buying votes and no fairness!

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