On middle ground

Tim Harper's column today is certainly worth a read in exposing the implausibility of the Cons' "economic stability" theme. But I'll point out that he completely buys the Cons' equally flawed spin as to who stands to benefit from the major planks they've hinted at in their 2015 platform:

The Conservatives under Harper have introduced a child-care benefit and a Working Income Tax Benefit to boost the working poor, but they are eager to put other measures aimed at the middle class in the window in 2015.

If the budget is balanced by then, the Conservatives are committed to doubling a children’s fitness tax credit, allowing income-splitting on family tax returns, introducing an adult fitness tax credit and doubling the limit on its Tax Free Savings Accounts to $10,000 annually.

Now, it may be true that the messages about income-splitting and TFSAs are intended to appeal to middle-class voters. But when it comes to the effects of those promises, there's little reason to think the middle class stands to benefit in the slightest.

Once again, here are David MacDonald's calculations on the distributional impact of income splitting:

Table 1 shows the distributional impact of Harper’s “Family Tax Cut.”  What is immediately clear is that this tax cut is anything but fair.  In fact, no family making under $41,000 gets any benefits whatsoever from the “Family Tax Cut,” no matter how they split their income up.  The poorest quarter of all Canadian families, which make $50,000 a year or less, share 0% of the total benefit and will see an average benefit of $20 a year.  Put another way, those half a million Canadian families that are stretched the most would see essentially no benefit from this proposal.

It isn’t only the poorest Canadians who get a bad deal out of the “Family Tax Cut”, middle class Canadians don’t fare well either. The middle 44% of Canadian families with children, those that make between $50,000 and $100,000, only get 39% of the benefit.  In essence, the “Family Tax Cut” steals from the poor and middle class to give to the rich.

At the very least, one would expect that something that is “fair” provides the same amount to all families with children, rich, poor or in the  middle.  However, the “Family Tax Cut” would provide 61% of the benefits to the richest third (32%) of Canadian families who make over $100,000 a year.   The very top 10% of families that make over $150,000 capture almost a third (28%) of this tax cut.

And similarly, Andrew Jackson summarizes the results of research into the impact of tax-free savings accounts:

Maureen Donnelly and Allister Young look at the slightly-longer UK experience with Individual Savings Accounts (ISAs), a plan similar to TFSAs. They find that beneficiaries of TFSAs are likely to be predominantly older, wealthier taxpayers, with relatively little benefit for low-income individuals. Rhys Kesselman argues that without a series of reforms, expanding the TFSA contribution limit would aggravate the TFSA’s existing deficiencies and result in a windfall for high income earners, allowing high earners to shelter additional wealth from income tax, and leading to higher GIS payments/lower OAS recovery tax.

Which is to say that the Cons' supposed "measures aimed at the middle class" serve only to exacerbate the across-the-spectrum inequality that's been stoked by the Libs and Cons alike over the past few decades - with the middle class once again losing ground compared to the wealthy. And while we might expect political spinmeisters to pretend otherwise, commentators like Harper should be smart enough to challenge the Cons' message rather than echoing it.