Tax reform that helps families
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The term “tax reform” is often used in order to promote corporate tax reform. However, little attention has been given to the manner in which our current taxation system entrenches privilege and discriminates against single income families.
I propose a change to the tax system which would reduce discrimination against single income families. Namely, ALLOWING FAMILIES TO FILE JOINT TAX RETURNS.
The reasons why I believe this change is warranted is as follows:
1. Allowing families to file joint tax returns would reduce distinctions between PAYG employees and the wealthy, who are often able to organise their tax affairs in a more efficient manner.
Our tax system does not allow PAYG employees to split their income. However, if you are lucky enough to own a business, or earn your income via a corporate structure, you are able to split your income via the use of discretionary family trusts. In most instances, our current taxation system regards these practices as legitimate. This unfairly disadvantages PAYG employees who have no legitimate means of income splitting.
How is this fair?
2. Allowing families to file joint tax returns would mean that the same rules apply when assessing what you have to pay to the government as compared to when assessing what the government has to pay to you.
If you are a stay at home carer, your ability to access government benefits is assessed on the basis of your family income. However, your family’s tax liability to the government is assessed differently – on an individual basis.
In other words, when it comes to what the government pays families, families are assessed on a collective basis, as this means that the government pays fewer benefits. However, when it comes to what families have to pay the government, tax payers are assessed on an individual basis, as this means that the government receives more tax.
How is this fair?
3. Allowing families to file joint tax returns would stimulate the economy.
Much of the debate around tax reform has centred on the need to stimulate the economy. Whilst it is true that a stronger economy means more jobs, many economists now question whether “trickle down” economics works at all, and now believe that economies are better stimulated by “bottom up” approaches that stimulate growth by butting more money in the pockets of consumers.
In other words, helping out companies may only possibly indirectly help families. However, if you give more money to families directly, this will definitely mean more spending. More money for families therefore means more money in the economy as a whole.
4. Allowing families to file joint tax returns because this means that two families with the same income pay the same amount of tax.
And finally, perhaps the best argument for allowing families to file joint tax returns is by considering a worked example (using rounded numbers) that highlights how ridiculous our tax system is.
Take two families. Family 1 has one income earner, a stay at home parent and a child with a disability which means that the stay at home parent cannot work. Family 1 earns $150,000 per annum. This family therefore pays approximately $46,000 in tax. However, they will receive approximately $60 per week from the government as a result of a non-income assessed carer’s payment. They will not qualify for any other income based benefit because their family income is too high. On a net basis, family 1’s net payments to the government will be approximately $42,000.
Take family 2. Family 2 has a family income of $150,000 but is able to income split. They don’t have a disabled child, so do not receive $60 per week from the government. However, their total tax bill is only approximately $35,000, which is about $17,500 each.
That is a difference of about $7,000.
How is that fair?
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