Canadian Personal Finance Blog

So after my posting about the cost of raising kids a while back a lot of folks pointed out the costs of daycare and how this is prohibitive for dual income families. To those who were so vociferous in your commentary about how I had missed the point, please watch the following video which I think puts forth a viable alternative to the high costs of daycare.

Report: Many U.S. Parents Outsourcing Child Care Overseas

Many thanks to John Chow for pointing this one out.

Related Links:

• My Spouse is Worth How Much: Scenario
• The Disappearing Middle Class in Canada

Thanks to everyone who commented on my dual income vs. single income family income discussions. That was interesting stuff, I have one more post on that, but I have to do some number crunching first, so I will hold off on that for a little while.

Stats Canada did have a very topical post last week entitled. Family Income which discusses the typical family incomes across Canada. Evidently the Median (remember we talked about what Median means in “Who Lives on the Median Income” , it is the mid point in a list of numbers) income for a family is highest in Ottawa-Gatineau (should I be proud about that?), which is $86,100, which is far higher than double the median income mentioned previously (remember that Median was about $26000 ). For all families in Canada the median is $60,600 which is up 2.1% year over year.

Remember that this is a smaller data set than the generic median income data from last week (it only includes “families”, and not single folks, etc.,).

So what would happen if we gave the Publics from last week the Median income for Canada?

If there was a single income earner and her gross income was $60,600.00 the family would owe: $11,914.32 in provincial and federal taxes and $2640.00 in CPP and EI payments.

If the income was split equally across the two of them they would owe a combined: $8475.42 and $3786.42 and in CPP and EI payments.

In that instance a difference in taxes of about 15.7% (not including things like daycare and such). The dual income model they are more likely to get Ontario Tax Credits as well.

We have seen now that the Publics (John Q. , Jane and the kids) pay less income tax if their family income was spread out between the two of them, and the amount of the difference is about $6000 (that is after tax money).

As I have stated this is a very pedagogical model, where I have not taken into consideration some vital concepts:

• The fact with two incomes there would be a need for daycare (unless the Publics had family who would watch the kids or something similar) and that as I have read in my comments is not inexpensive. Having said that, with two incomes the costs of daycare will eventually drop, but the Publics will still be allowed to write off costs of day camps in the summer, and other similar programs, that would not be available if they had a single income in the household.
• The detail that both spouses make the same amount in the dual income model is a little synthetic as well, since usually the female spouse makes 60-80% of what the male spouse makes (from studies, remember, I have daughters, I am not saying I like this, just that, this is the case).
• There are other tricks that can be tried with single income families about loaning moneys and such, but most single income families don’t know, or do such things (that I have spoken with).
• The family income assumed is much higher than the Canadian Median, so whether this is a model for most Canadians, is debatable as well.

My view of this is the tax system does not help out families of all kinds very much these days, and the single income family does not get a lot of the advantages that a dual income family receives.

How could this be changed?

• Introduce the concept of the family income or household income. This would level the playing field for single income families. If there is only one spouse, but there are children under 18 being supported, allow the income earner this option as well (as is the case with families where the spouses are separated or divorced).
• Resurrect a child tax credit for each child under 17 years of age still living at home. This would help both families deal with the expenses of raising children.

Income splitting is allowed currently for retirees, and I think that is a good thing, I’d love to see that program expanded to be a general program.