This is another blast from the past note the date of posting (2007)
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 before (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 $60,600.00the 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.
Follow On Stories
We continue to try to figure out how much a spouse is worth in the eyes of the CRA. So the Publics (Jane and her spouse John Q.) have a good life and an above average household income of $100,000.00 per year.
Single Income model:
- Income tax paid would be $27,661.98
- They would pay a total of $2640.00 in CPP and EI payments
- Final score around $30K in taxes and payments.
Dual Income model:
- Income tax paid would be $20,561.46 (paid by both)
- They would together pay $5280 in CPP and EI payments
- Final score around $26K in taxes and payments
Interesting so the gap for this family as laid out is about $4000.00 or so. Now this is after tax money, so the single income earner model would need to may about $7000 more gross income to be the same net income.Now I have had some very good comments from various readers (I am impressed that this has caused such discussion), commenting that I am not taking into consideration the high costs of day care and such. Those are good points, but remember that the dual income family also gets to write $7000 worth of that from their income, and no I am not saying it is a “wash” but that needs to be considered. There are other points as well that can be made, but it makes the argument quite complicated.
My conclusions and final comments how much my spouse is worth will be posted tomorrow.For those of you who agree or disagree, I open my forum to you, if you wish to write a rebuttal or supportive article, I am willing to post it (after reviewing it myself, it is my blog, after all). Leave a comment, I will contact you.
In this series, My Spouse is worth how much, we have looked at what John and Jane Q. Public’s taxes were like if they both had equal paying jobs, but today we look at what if one of them had a job that paid as much as the two combined in the previous scenario.
Being the father of 3 daughters, I naturally have chosen that Jane is a high flying executive at Generic Co. and her husband John stays home with the kids (remembering that Mary their daughter is now much younger, thanks to the correction we did yesterday). Do the Publics pay more in tax now, or less than if they both worked?
So the final total in this scenario is $27,661.98 owing in Federal and Provincial taxes.
Note that John got to write off the UCCB grant since he had no other income.
Tomorrow, let’s discuss what we have seen about what my spouse is worth in the past two days, shall we?
I have talked about how single income families do seem to get the dirty end of the stick, and this is another in a series about that topic, from 2007.
The past couple of years, I have used my Quicktax program as a financial forecasting tool (as well as an excellent, if somewhat expensive, tax preparation program). Every year I wonder what is the difference if both my wife and I worked and earned the same Gross Family Income, as compared to our current situation where I am the sole bread winner (by choice)? (a note for American readers, there is no concept of income splitting in Canada, until you retire, and even then…)
I have pointed out on this web site (and to my members of Provincial and Federal Government) that the Canadian Tax code is slanted toward dual income families and actually penalizes the “traditional” single income family.
Before I get posts about how I am against women in the workplace, or the same kind of arguments, I am the father of 3 daughters, and I am not against women in the workplace (I prefer female bosses, if you were asking my opinion), what I am saying is that single income families do not get the advantages that dual income families have.
Some of these advantages are:
- Writing off day care costs. Now yes, this is legitimate costs of going to work, so I am not saying this is bad, however, they get to write off summer camps as well, however, I do not because my wife stays at home.
- The “equivalent to married” non-refundable tax credit I get for my wife adds up to not very much (I’ll have that as part of my calculations in later postings).
- A benefit of having two medical programs (which not all dual income families have) is that a lot of expensive medical procedures typically only covered as 1/2 on most medical plans, end up being covered completely by both insurance companies (e.g. Braces, Crown replacements, etc.,)
- What happens with CPP? Both in a dual income family would get CPP payments, but does my wife get one, in a single income family? Don’t know, need to go find that one out.
There are other tax advantages as well. Now, a single income family like mine has other advantages as well (I am not complaining about the single income concept, I think it is good), so let’s not get into discussions like that I am looking solely at the Canadian Tax system. My family gets the “Beer and Popcorn” money and doesn’t get it clawed back!
Coming next, what do the numbers say?