The NZ Herald says:
Thus there may be a case for compensating a household when one of the earners becomes unemployed in the current recession. Two Auckland economists have called for a relaxation of the rule that refuses the dole to a person whose partner is earning even a modest income. They point out that this is inconsistent with the taxation system which treats couples as separate income earners.
They have not drawn the obvious conclusion, though, that a better solution might lie in changing the tax system. If couples could combine their incomes for a tax assessment, and each be taxed for half of it, the loss of one income would reduce the tax on the other, delivering an appreciable benefit to the household. …
This proposal, known as “income splitting”, deserves consideration for reasons wider than unemployment. If it was adopted as a permanent feature of income tax it would be fairer than the present system for couples in which one partner chose not to be in paid employment.
So the Herald says a better option that allowing people to go on the dole if their partners are working, is income splitting.
I’m not a big fan of income splitting as it will lead to all sorts of “false couples” in order to income split, but I have an even better option that achieves the same end without the perverse incentives.
A flat tax rate. Then there is no need to income split. And you just have a guaranteed minimum family income for low income earners.Tags: income splitting, NZ Herald, tax rates