Professional Documents
Culture Documents
Ottawa, Canada
17 March 2015
www.pbo-dpb.gc.ca
The mandate of the Parliamentary Budget Officer (PBO) is to provide independent analysis to
Parliament on the state of the nations finances, the governments estimates and trends in the
Canadian economy; and upon request from a committee or parliamentarian, to estimate the
financial cost of any proposal for matters over which Parliament has jurisdiction.
The authors thank PBO colleagues for comments. Any errors or omissions are the responsibility of the authors.
Please contact Mostafa Askari (email: mostafa.askari@parl.gc.ca) for further information.
i
Executive Summary
The Family Tax Cut (FTC), commonly referred to as
income splitting, permits a spouse to notionally
transfer up to $50,000 of taxable income to a
spouse facing a lower federal tax rate.
1,000
750
13
360
10
30
250
0.4
FTC Gains (all
households)
500
-5
0.3
FTC Eligibility
Likelihood
20
-250
-10
0.2
-15
-14
-20
10
Secondary Earners
0
1
10
Income Decile
-750
-1,000
Primary Earners
0.1
0.0
-500
-10 -450
35%
30%
MTR = 26%
25%
20%
MTR = 15%
15%
Income = $30,000
Taxes = $4,500
ATR = 15%
10%
5%
Income = $100,000
Taxes = $19,480
ATR = 19.5%
0%
50,000
100,000
150,000
The FTC takes effect, retroactively, for the 2014 tax year onward.
Who is affected?
0.4
0.3
0.2
0.1
0.0
1
Secondary
Earners
Individuals Impacted
In Labour Force
Annual Income
(median)
Weekly Hours (median)
1,980,000
1,970,000
1,980,000
1,590,000
75,000
25,000
40
29
36
18
% Part-time
3%
31%
10
Income decile
Source: Parliamentary Budget Officer.
30
FTC Gains (all
households)
2.0
1.5
20
FTC Eligibility
Likelihood
1.0
10
0.5
0.0
0
1
10
Figure 2-5: Distribution of average benefits by family taxable income structure, eligible households only (dollars)
0-10
250
10-20
180
20-30
440
260
330
30-40
830
370
340
390
40-50
1,290
290
180
180
120
50-60
1,760
740
640
550
160
60-70
1,920
1,370
1,230
700
160
70-80
1,920
1,870
1,370
650
190
80-90
1,920
1,930
1,390
670
180
90-100
1,930
1,940
1,560
860
260
170
230
190
140
100+
1,920
1,940
1,830
1,670
1,370
1,200
1,120
850
470
630
0-20
20-30
-
70-80
-
80-90
-
90+
-
Figure 2-6: Distribution of total benefits by family taxable income structure (millions of dollars)
0-20
20-30
30-40
40-50
50-60
60-70
70-80
80-90
90-100
100+
Total
0-10
15
80
140
150
140
115
90
85
250
1,065
10-20
5
5
15
40
85
65
35
25
110
385
20-30
5
35
60
40
35
30
105
310
70-80
30
30
80-90
15
15
90+
25
25
Total
20
85
165
270
320
255
185
170
750
2,220
Box 3-2
Average and marginal effective tax rates and
wages
A workers average effective wage is inversely
proportional to their average effective tax rate
(AETR). For most workers, the tax deductions on
their pay cheque divided by their gross pay would
roughly correspond with their AETR.
(
Source:
Status Quo
FTC
30
25
22.7
20.1
15
Primary
Secondary
20
FTC
36%
36%
Status Quo
43%
29%
Change
-7 p.p.
+7 p.p.
11.7
10.6
10
5
0
Primary Earner
Source: Parliamentary Budget Officer.
Secondary Earner
600
360
15
10
450
7
300
150
-5
-150
-10
-300
-15
-14
-20
Primary Earners
-450
-450
-600
Secondary Earners
0.10
0.05
0.04
Income
0.04
0.00
-0.05
-0.05
-0.07
-0.10
Primary Earners
Source: Parliamentary Budget Officer
Secondary Earners
140
Uncapped
0.6
120
Baseline
0.5
100
% increase from
baseline
0.4
80
0.3
60
0.2
40
0.1
20
0.0
Households
585,000
50,000
7,000
642,000
0
1
10
9
0
-10
Primary Earners
Secondary Earners
Net
13
10
Capped
360
-450
-90
Secondary
30
-14
-20
Uncapped
1,230
-630
600
-14
-30
-28
-40
Narrow (p=0.07, Baseline (p=0.035,
s=0.17)
s=0.17)
Wide (p=0.035
s=0.34)
800
670
360
400
Secondary
1,200
360
0
-400
-800
-440
-890
-1,200
-450
Narrow (p=0.07,
Baseline
Wide (p=0.035
s=0.17)
(p=0.035, s=0.17)
s=0.34)
10
10
Secondary
40
30
20
13
10
0.40
-10
-7
-20
0.35
-14
0.35
0.32
0.30
-30
-27
Half of Baseline
Baseline (p=0.035,
(p=0.0175,s=0.085)
s=0.17)
0.23
0.25
-40
Double Baseline
(p=0.07, s=0.34)
0.20
0.15
0.10
0.06
0.05
0.02
0.00
Male
Primary
Education
670
800
360
190
0
-400
Age
Secondary
1,200
400
Income Employment
Differential
Income
-230
-450
-800
-870
-1,200
Half of Baseline
Baseline (p=0.035,
(p=0.0175,s=0.085)
s=0.17)
Double Baseline
(p=0.07, s=0.34)
11
11
PIT Benchmark
20
15
10
7
3
5
0
-5
-10
-15
-14
-20
Primary Earners
Secondary Earners
Millions
FTC
PIT Benchmark
900
600
300
360
280
190
0
-300
-600
-450
-900
Primary Earners
Secondary Earners
12
)
(
Source:
15
12
16
14
13
Source:
Mean value
Mean elasticity
Men
Women
0.07
0.34
18
17
14
Source:
21
15
References
Bargain, Olivier; Peichl, Andreas, 2013. Steady-state
labor supply elasticities: A survey.
http://www.zew.de/en/publications/7158
Blau, Francine D., Kahn, Lawrence M., 2006.
Changes in the labour supply elasticity of married
women: 1980-2000. http://ftp.iza.org/dp2180.pdf
Congressional Budget Office, 2012. How the
Supply of Labour Responds to Changes in Fiscal
Policy. www.cbo.gov/sites/.../10-25-2012Labor_Supply_and_Fiscal_Policy.pdf
Evers, Michiel; De Mooij, Ruud; and Van Vuuren,
Daniel, 2008. The wage elasticity of labour supply:
a synthesis of empirical estimates.
http://download.springer.com/static/pdf/738/art%2
53A10.1007%252Fs10645-007-9080z.pdf?auth66=1424199824_0f7f1f765233e352c3f43
342f04e3e32&ext=.pdf
Organisation for Economic Co-operation and
Development (OECD), 2011. Taxation and
Employment. Chapter 1, pages 28-32.
http://www.oecd.org/ctp/48859441.pdf
Parliamentary Budget Officer, 2010. Estimating
Potential GDP and the Governments Structural
Budget Balance.
http://www.pbodpb.gc.ca/files/files/Publications/Potential_CABB_E
N.pdf
Statistics Canada, 2014. The Social Policy Simulation
Database and Model (SPSD/M) v. 21.
http://www.statcan.gc.ca/eng/microsimulation/sps
dm/spsdm.
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