BOUTIQUE TAX CREDITS PUSHING SINGLES INTO POVERTY-Part 1 of 2

Posted on June 23, 2016 by ffswpadmin

BOUTIQUE TAX CREDITS PUSHING SINGLES INTO POVERTY-Part 1 of 2

These thoughts are purely the blunt, no nonsense personal opinions of the author and are not intended to provide personal or financial advice. (six-reasons-why-married-coupled-persons-are-able-to-achieve-more-financial-power-wealth)

(The last two posts discussed how detrimental boutique tax credits can become to the financial well-being of a country and its citizens. Boutique tax credits once they have been implemented are very hard to repeal because of voter sense of entitlement. These were based on ‘Policy Forum: The Case Against Boutique Tax Credit and Similar Expenditures’ by Neil brooks). This post was updated on July 8, 2014.

This post itemizes a personal finance case showing how certain family units benefit far more from boutique tax credits than other family units like ever singles. One could say this case is totally bizarre in how benefits can be doled out in excess while recipients pay little or no tax). This post was updated on June 24, 2016.

CASE 1 – Financial Post Personal Finance Plan, June 11, 2016 – ‘Farm Plan Risky for Couple with 4 Kids’ (financialpost)

Ed age 32 and Teresa 33 have four children ages 5, 3, 1 and newborn in British Columbia. Ed works for a government agency and Teresa is a homemaker. At age 32 and 33, they already have a net worth of $502,000. Their $208,000 home is not in the Vancouver area and is fully paid for. Their land is valued at 177,000 with $37,000 (21%) owing on the mortgage. They would like to sell their house, move out of town and set up a small farm. Ed would give up his government job and they would get income by selling eggs and produce, hopefully at a profit. Their plan is to retire comfortably and securely with about $4,000 in present-day dollars and after tax. At age 32 and 33, they also already have a net worth of half a million dollars ($502,000).

Ed brings home $2,680 per month. They will receive the new, non-taxable Canada Child Benefit (CCB) (brought in by the ruling Liberal Party to replace the Conservative Universal Child Care Benefit) at $1,811 for their four children, all under the age of 6. This brings their total family disposable income to $4,491 per month. The CCB makes a huge difference by contributing about 40 per cent to take-home income.

(When all four children are ages 6 to 17, the CCB will be $1,478 a month based on 2016 rates).

Financial Planner’s Recommendations – Apply $17,000 cash already reserved for kids to Registered Education Savings Plans (RESP), so they can capture the Canada Education Savings Grant (CESG) of the lesser of 20 per cent of contributions or $500 per beneficiary. Using the children’s present ages of 5, 3, 1, and one month, subsequent annual contributions of $2,500 per child plus the $500 CESG (to a maximum of $7,200 per beneficiary) with a three per cent annual growth after inflation would generate a total of about $270,000 or about $67,500 per child for post secondary-education.

Re job, advice is that Ed continue working until the age of 60 and when the youngest child is 18. Advice is also given for purchase of the farm, details of which will not be discussed here. Each spouse would add $5,500 to their TFSAs for each year until Ed is age 60.

Re retirement, if Ed retires at age 60 and Teresa continues as a stay at home spouse, in 2016 dollars he and Teresa would have his $26,208 defined benefit pension and the $7,200 bridge, Registered Retirement Savings Plan (RRSP) payments of $5,727 a year and Tax Free Savings Account (TFSA) payments of $29,360 for a total pre-tax income of $68,495, or $5,137 per month to spend after 10 per cent tax and no tax on TFSA payments. At age 65, Ed would lose the $7,200 bridge but gain $11,176 in annual Canada Pension Plan (CPP), plus Old Age Security (OAS) payments of $6,846 each spouse, for total income of $86,163 with no tax on TFSA payouts and pension and age credits. After tax, they would have $6,460 a month to spend. Both before and after 65, they would have achieved beyond expectations their goal of $4,000 monthly income.

The unknowns of this plan are the cost of farm and whether it will make a profit. The financial planner states:

“As a retirement plan, it is a wonderful goal. As a financial endeavour, it is speculative.”

ANALYSIS

All calculations in 2016 dollars and assumes there is no wage increase for Ed and Teresa will remain stay at home spouse and all federal benefit plans and credits will remain the same.

Child benefit non taxable:

All four children up to and including age 5 – $1,811 per month times 12 months times 5 years (not fully calculated for age) = approximately $108,000

All four children age 6 up to and including 17 – $1,478 per month times 12 months times 13 years = approximately $231,000

Total benefit for eighteen years = approximately $339,000

TFSA contributions in after-tax dollars and tax free and not including interest earned $5,500 times two persons times to sixty years of age (Ed) $11,000 times 28 years = $308,000

RESP contributions $2,500 per child per year times four equals $10,000 per year plus $500 up to maximum $7,200 grant per child will generate with three per cent growth a total of about $270,000 education savings for children.

$7,200 grant per child times four = $28,800.

Retirement – they want to retire at age 60, will pay only 10 per cent tax on $68,495 pre-tax including tax-free TFSA income or $5,137 per month. At 65 they will have total income of $86,143 and with pension splitting will have $6,460 after-tax monthly income (not able to calculate total benefits received).

These calculations do not include other possible GST/HST credits and tax credits offered by the provinces (example: BC Low Income Climate Action Tax Credit even though this family unit of six will use far more resources affecting climate change than a family unit of one person). These calculations also do not include benefits of reduced fees, etc. that families get, but ever singles do not.

If Ed retires at age 60, when his youngest child is age 18, he will never have worked a year where full taxes were paid.

All things being equal, this couple will receive benefit upon benefit from present year to when they retire at age 60 and beyond age 65. If Ed is deceased before Teresa, as a widower Teresa will receive even more benefits as a survivor with survivor pension benefits.

In reality, they likely will receive approximately $1 million dollars in benefits which is essentially the cost of raising their children and their children will have healthy education accounts. The parents will retire with even more income than they had while raising their children, and have accumulated a healthy sum in assets. With assets and value of assets remaining same at age 60 retirement, parents will have $485,000 in farm, $48,000 in RRSPs and $349,000 in TFSAs for total of $882,000. So, they will essentially be close to millionaire status while receiving multiple benefits and paying almost no taxes.

This couple from the time they are married until one spouse is deceased will have received shower, wedding, baby gifts, possible maternity/paternity leaves, child benefits times four children, TFSA benefits times two, reduced taxes, pension splitting, possible survivor pension benefits, and retirement before age 65.

While it is understood that is expensive to raise children, it is bizarre that parents believe they can raise children, retire before age 65 and pay very little in taxes to support the benefits they believe they are entitled to. Why should these families get benefits beyond raising their children like pension splitting when they have huge TFSA tax free accounts including other assets? (Neil Brooks calls the pension splitting tax credit outrageous). The plethora of benefits given to parents with children is what the blog author calls ‘selective’ social democracy or situation where benefits are given to one segment of the population so they can achieve more wealth at the expense other segments of the population such as ever singles and divorced persons without children.

CONCLUSION

So who is paying for all of this? One group of Canadian citizens subsidizing families as in case above are ever singles (never married, no kids) and divorced persons without children. They will never achieve a monthly income of $4,500 per month unless they are making a very good income. They don’t have the money to max out TFSA amounts like this couple has. The only benefits ever singles and divorced persons without children will ever receive is if they are in an abject state of poverty. They also will never be able to accumulate the retirement and other assets that this couple has. They are never likely able to retire at age 60 unless they have equivalent income to the above couple (at least $60,000 per year). A middle quintile income for unattached singles is $23,357 to $36,859. At $55,499 income an unattached single is considered to be in top quintile of income for the country (moneysense), but they have problems living on this income as has been shown in previous posts.

Ever singles and divorced persons without children with before-tax income equivalent to this couple will pay much more tax, for (example $60,000 to $70,000 income). If one calculates the income tax contributed by an ever single at $15,000 per year time 40 years of employment total contributed to Canadian coffers is $600,000 over working life. Employment insurance deductions (used in large part for maternal/paternal leaves) at $1,000 per year adds another $40,000 to the total. Ever singles never get any of this back because they pay more taxes, can’t pension split and are not considered to be part of the financial family by politicians, government and even their own families and married/coupled siblings.. All political parties are guilty of excluding ever singles from financial formulas. Ever singles have very little financial and voting power because they are a minority in a society where parents and children rule.

Ever singles and divorced persons without children are being pushed into a state of poverty by the plethora of tax credits given only to families, but for which ever singles and divorced persons without kids have to pay without getting equivalent of same benefits.

This blog is of a general nature about financial discrimination of individuals/singles. It is not intended to provide personal or financial advice.

BOUTIQUE TAX CREDITS INCONSISTENT AND FINANCIALLY DISCRIMINATING (Part 2 of 2)

Posted on June 19, 2016 by ffswpadmin

BOUTIQUE TAX CREDITS INCONSISTENT AND FINANCIALLY DISCRIMINATING (Part 2 of 2)

These thoughts are purely the blunt, no nonsense personal opinions of the author and are not intended to provide personal or financial advice.

(The following information is taken from: Policy Forum: The Case Against Boutique Tax Credits and Similar Tax Expenditures by Neil Brooks (brooks) (abstract) which show SELECTED TAX EXPENDITURES INTRODUCED OR SUBSTANTIALLY AMENDED FROM 2006 TO 2015 (page 129). His article states:

The table that follows lists selected tax expenditures introduced or substantially amended by the Conservative government between 2006 and 2015. These tax expenditures are listed under the headings and in the order shown in the Department of Finance’s Tax Expenditures and Evaluations 2014. To provide some context, a few of the listings have a brief introduction. The year in parentheses following the listing is the year the measure was introduced or enriched. The projected cost for 2014 of new and amended tax expenditures is then given, if it was provided in that year’s tax expenditures and evaluations report.

Where the tax expenditure takes the form of a tax credit, the table indicates the amount of the credit. The actual value of the credit to the taxpayer is almost always 15 percent (the lowest federal tax rate in 2015) of the amount claimed by the taxpayer. For example, although the maximum amount of the children’s fitness tax credit was increased to $1,000 in 2015, the maximum federal tax saving to the taxpayer is $150 ($1,000 × 0.15).

Some of the costs to the government as outlined in the Brooks article for the Selected Boutique Tax Credit Benefits are as follows: charitable donation benefits and exemption of capital gains $265 million from 2017 to 2020, first time donor’s super credit $7 million, children’s arts tax credit $42 million, textbook tax credit for post-secondary education and certified occupational training $34 million-amount claimed by students (not transferred to parents), post-secondary scholarships, fellowships, and bursaries exempt from tax $45 million, Canada employment tax credit $2.145 billion, volunteer firefighters tax credit $17 million, search and rescue volunteers tax credit $4 million, family caregiver tax credit $65 million, age tax credit $2.955 billion 2009 (parliamentary budget officer estimates that the two increases in the age credit since 2006 will have a fiscal impact of $950 million in 2014), registered disability saving plan $8 million, pension income tax credit $1.12 billion, changes to registered retirement savings plans and registered retirement income funds $670 million from 2016 to 2020, first-time home buyer’s tax credit $110 million, home renovation tax credit $2.265 billion in 2009), public transit tax credit $190 million.

(It should be noted that some of these have changed or been deleted since the Liberal party won the 2015 election).

Table – page 1 of 4

Table – page 2 of 4

Table – page 3 of 4

Table – page 4 of 4

This blog is of a general nature about financial discrimination of individuals/singles. It is not intended to provide personal or financial advice.

BOUTIQUE TAX CREDIT INCONSISTENT AND FINANCIALLY DISCRIMINATING (Part 1 of 2)

Posted on June 16, 2016 by ffswpadmin

BOUTIQUE TAX CREDIT INCONSISTENT AND FINANCIALLY DISCRIMINATING (Part 1 of 2)

These thoughts are purely the blunt, no nonsense personal opinions of the author and are not intended to provide personal or financial advice.

Revisions were applied to this post on June 19, 2016.

(Preface: Every political party has introduced tax credits to give financial benefits to certain members of the population more than others. However, during the reign of the Conservative party under Prime Minister Stephen Harper, a plethora of tax credits were introduced. This led to coining of the phrase ‘boutique tax credits’. Much of the following information has been taken from the ‘Policy Forum: The Case Against Boutique Tax Credits and Similar Tax Expenditures by Neil Brooks’ (brooks). The Neil Brooks discussion provides an excellent overview of why boutique tax credits are so wrong and discriminatory. While many families, especially poor families do not benefit from boutique tax credits, ever singles also do not benefit from most of the tax credits. If there are any negatives to the study it is that financial discriminatory impact of tax credits and expenditures for ever singles and to some extent single parent with children family units is not fully recognized).

The author of this blog has long thought that boutique tax credits are financially discriminatory to singles. However, we cannot even begin to articulate what Neil Brooks has so eloquently stated in his article. The entire article is worth a read including the footnotes which provide excellent information on many commentaries and studies of this topic. For this post, we attempted to condense the PDF from 68 pages to 8 pages, for example, by eliminating the many footnotes – see condensed version at the end of this post. Blog author’s comments have been highlighted in blue).

This has been a very difficult post to write in terms of length as there is so many excellent points that have been made by Neil Brooks in his study, so be forewarned that the condensed version of the Brook;s article is eight pages long).

PROBLEMS WITH BOUTIQUE TAX CREDITS (AS IDENTIFIED BY BLOG AUTHOR)

SUMMARY OF TAX PROBLEMS:

Problem 1 – Conservative boutique tax credits purposely target traditional family values (single income families). Boutique Tax Credits initiated by the Progressive Conservative Party under Stephen Harper purposely target traditional family values. The party never gives a definition of traditional family values or who is included in the traditional family. They talk about the family unit as ‘essential to the well-being of individuals and society’. A reflection of their belief in the importance of the role of the traditional family in society, another objective was to privilege single-earner families through the tax system (page 76). (Blog author’s comments: Ever singles are generally not included in these boutique tax credits).

Problem 2 -tax expenditures introduced by the Conservatives of Boutique Tax Credits were targeted at relatively narrowly defined groups of potential Conservative voters (page 67). Finance Minister’s budget moved to put the finishing touches on building a new Conservative coalition through a series of tax cuts, rebates and other subsidies aimed at select segments of the voting population (page 73). By enacting these tax expenditures, as opposed to across-the-board tax cuts, the Conservatives were able, at a much lower cost, to favour middle-class families with children, middle-income and well-to-do seniors, and other much more narrowly targeted groups ( page 77). (This is what this blog author calls ‘selective’ democratic socialism).

Problem 3 – Tax Credits and Expenditures ignore traditional tax criteria that apply to technical tax provisions, namely, equity, neutrality, and simplicity (page 69).

Problem 4 – Conservatives were “pleasing their electoral base with . . . dollars in pockets for boutique programs rewarding wealth and socially conservative values (page 69). An example is pension splitting where wealthy married/coupled persons benefit the most, poor and married or coupled persons with equal incomes benefited to a lesser extent.(Blog author’s comment: Ever singles and divorced/separated persons are not able to use this tax credit).

Problem 5 – Tax Expenditures Can Serve as a Bribe to Potential Voters (page 77) By enacting these tax expenditures, as opposed to across-the-board tax cuts, the Conservatives were able, at a much lower cost, to favour middle-class families with children, middle-income and well-to-do seniors, and other much more narrowly targeted groups.

In 2011, the average taxpayer with an income between $100,000 and $150,000 paid $3,633 less in taxes. The average taxpayer with a very modest income of between $20,000 and $25,000 saw only $475 back in the same period. These numbers are before the impact of the new Family Tax Cut and the doubling of the Child Fitness Tax Credit – both of which are likely to accelerate the same trend. (/canada2020). (Blog author’s comment: Poor families and ever singles including seniors are least likely to benefit (senior-singles-pay-more).

Problem 6 – It is very difficult to get rid of tax expenditures or tax credits once they are implemented. Political parties are reluctant to eliminate them even if they are discriminatory for fear of losing votes. Also, tax expenditures are extremely hard to repeal, even the truly awful ones, since eliminating a tax expenditure will be framed as a tax increase (page 78). (Blog author’s comments: Will it ever be possible to eliminate the pension splitting from which wealthy families benefit the most? And, who is paying for this?) Neil Brooks calls pension splitting an “outrageous pension income splitting scheme that should be repealed and the revenue used to enrich, or reduce the clawback, of the old age security pensions” (page 122). Reducing clawback will not solve problem of inequality if clawback is not increased for singles and reduced for married or coupled persons through income-testing.

Problem 7 – Tax expenditures that are relief measures transfer income from one group of individuals to another. (Blog author’s comment: Instead of these relief measures targeting lower income individuals and families, many have benefited wealthy families the most. Ever singles benefit the least).

Problem 8 – Psychological impact of tax credits or expenditures (The Public Appears to Favour Policies Framed as Tax Breaks-page 83). people’s psychological biases predispose them to favour tax expenditures, certainly over direct spending programs……label—tax relief versus direct outlay—matters.” These studies are also consistent with other survey results in which respondents admit to have benefited from tax expenditures and yet deny ever having used a government social program.(Blog Author’s comments: The reverse effects of Tax Credits and Expenditures are often not discussed, that is, the anger and financial despair that some citizens feel towards those that are receiving more of the benefits without, for example, application of income-testing principles).

Problem 9 – Tax Expenditures Reduce the Political Pressure for Public Programs (page 84) One of the Conservatives’ major political goals has been to resist the public provision of social programs. Hence, another explanation for the popularity of tax expenditures under the Conservatives is that they were a step forward in implementing a broader political project, a private-sector welfare state.Tax credits for private caregiving work reduce the political pressure for publicly provided long-term care facilities.. …. Supplementing the wages of low-income workers with a tax credit reduces the pressure to offer public service jobs to the unemployed…..The tax subsidization of tuition fees, textbooks, and interest on student loans reduces the political pressure for more direct government support for universities.

Problem 10 – Tax Expenditures Make the Tax System Less Transparent (page 94) and Tax Expenditures Divert the Resources of the CRA and Create Administrative Problems That Damage Its Reputation (page 94)

- Complexity and number of tax credits make them very difficult to interpret and lawyers and accountants become intimately involved in their implementation. As a result attention is directed towards interpretation of these credits instead of tracking abuse of the tax system.
- Many are badly designed (page 96)
- Tax Expenditures Often Do Not Serve Important Objectives of Government Policy (page 97)
- Tax Expenditures Often Do Not Achieve Their Objectives Equitably (page 104)
- upside-down effect of tax deductions
- all tax credits should be refundable.

(Blog author’s comment: Past posts have talked about upside-down financial effects (housing), and tax credits should be refundable and income-tested. To have someone else confirm these facts is reassuring. It would be nice if political parties and governments also realized these facts.)

Problem 11 – Education – Conservatives completely exempted certain scholarships and fellowships from tax in their first budget in 2006. The exclusion of a $10,000 scholarship for a low-income student who has no other income provides that student with no implicit subsidy. However, the same exclusion will provide an implicit subsidy of $2,200 to a higher-income student in the 22 percent tax bracket. If the point of the exclusion was to benefit needy students, this upside-down effect is perverse (page 104)

Problem 12 – Low income individuals and families benefit the least. A credit that can be offset against a taxpayer’s tax liability is of no value to a low-income person who has no tax liability because his or her income is less than the amount of the basic personal tax credit, for example. Hence, all tax credits should be refundable (page 106)…..In terms of delivering subsidies equitably through the tax system, if the primary purpose of a tax credit is to incentivize or assist low- or middle-income individuals, entitlement to the credit should be income-tested so that it vanishes when a taxpayer’s income reaches a certain amount (page 108). Income-testing so that it vanishes when income reaches a certain amount should vanish quicker for for married or coupled persons than singles as it costs more for singles to live than married/coupled persons as a family unit.

Neil Brooks has also stated that analysis of financial formulas such as distributional tables should show beneficiaries by income class, gender, household type, age cohort, and geographical region. This is based on known facts that females and disadvantaged persons based on race likely benefit least from tax credits (page 111). (Blog author’s comments: Analysis of household types is important as ever singles and early divorced singles are likely to benefit the least from all tax credits).

Problem 13 – The proliferation of tax expenditures, such as the boutique tax credits, gives rise to significant rent-seeking social costs. (page 114) and encourages relevant interest groups to lobby for analogous tax expenditures. (page 114). (Blog author’s comments: Powerful lobby groups such as families and seniors often lead to tax credits and expenditures targeting these groups. Ever singles do not have this kind of financial and lobbying power. As a result they are likely to receive less of these benefits).

Problem 14 – Boutique tax credits are useless when they target everyone in a group, for example, seniors. Giving age credit to all seniors benefits wealthiest seniors more as poor seniors do not have enough income to apply tax credits (page 122).

Problem 15 – This problem as been added by the blog author, that is there is a compounding effect to tax credits when they are applied one on top of another for specific groups. An example is when child tax credits are given to married or coupled family unit, who then are also able to use pension splitting credits as seniors. As a result, married or coupled persons with children are able to gain more wealth than ever singles who are not able to use any of these credits.

Problem 16 – This problem has been added by the blog author, that is the so called ‘merry go round credits and expenditures which disappear and reappear. Some citizens can never get on the merry go round because their place in line keep getting pushed back or they are kicked out of the line or they excluded from the lines. For example, there are some parents who have never benefited from any the child tax credits because they had no children during implementation of some tax credits only to have these tax credits abolished when they do have children.

CONCLUSION

(Blog author’s comments: it would seem that a solution to the elimination of Tax Credits and Expenditures with fairness, equality, neutrality and simplicity for all, perhaps, should be to provide three government funded basic rights: healthcare, college/university education, and universal day care).

THECASEAGAINSTTAXCREDITSANDOTHEREXPENDITURESCONDENSED

This blog is of a general nature about financial discrimination of individuals/singles. It is not intended to provide personal or financial advice.

POLITICIAN’S RESPONSE LETTER DOES NOT UNDERSTAND SINGLES’ FINANCES

Posted on June 12, 2016 by ffswpadmin

POLITICIAN’S RESPONSE LETTER DOES NOT UNDERSTAND SINGLES’ FINANCES

These thoughts are purely the blunt, no nonsense personal opinions of the author and are not intended to provide personal or financial advice.

The post on Fort McMurray Fire Disaster relief (fort-mcmurray-fire-disaster)showed how family units comprised of singles received the lowest financial assistance of all family units. This information was sent to Province of Alberta politicians to make them aware of this situation.

One of the politician’s (right wing Conservative) response to this information is outlined here. This letter continues to show the financial misunderstanding and financial discrimination of singles in this country.

A portion of the letter is reproduced as follows:

“Data from Statistics Canada Table 203-0023 concerning total household expenditures shows that Alberta government and Red Cross financial assistance for single person households, lone parent households, and couples without children total between 50% and 63% of typical monthly expenditures for those household types. The only household type to receive financial assistance approximating their average monthly household expenditures were couples with children. The same data shows that a two person household with no children has almost twice (184%) the household expenses of a one person household.

Given that shelter, food, household operations, transportation, healthcare, and recreation are the largest components and total approximately 50% of household expenditures of all the household types, and given that most of those goods/services are provided without cost or at steep discounts to evacuees, and given that those goods/services are used in reduced amount during evacuation, the level of temporary financial support provided does not appear unreasonable. However, given that some organizations’ aid programs are focused on the needs of mothers, seniors, and other demographics, there may be an opportunity for more organizations or programs focused on single adults.

It is true that two parent families with two or more children receive more financial assistance than the other family types, however we are not aware of a compelling public benefit to reducing financial assistance to individuals living as two parent families with children on the basis of their family status.

With respect to potential human rights violations, the financial assistance appears to be provided without discrimination on the basis of any protected human rights grounds, with the reasonable exception of children who have lower financial needs than adults and seniors. As far as we are aware, “financial human rights” is an interesting concept but not currently a well-founded legal doctrine in Canada or any other jurisdiction. In order for treatment of particular social groups to amount to persecution, any alleged violation of basic human rights would need to arise out of repeated or mistreatment which causes personal harm the affected individuals. All of the available evidence suggests that the relevant governments intend to rebuild the wildfire-affected areas and to resume providing services to individuals communities in the same ways as before the wildfires.”

First, the Conservative right wing politician’s letter refers to Statistics Canada Table 203-0023 showing 2013 household expenditures for family units of one person households, lone parent with children, couples without children, couples with children as well as other family unit types. It is interesting to note that this data was based on surveys and these expenditures include tobacco and alcohol as well as games of chance. These are wants, not needs and do not deserve to be included in any discussion of fairness of financial expenditures or financial disaster assistance of family units.

Second, the letter readily admits that two parent with children family units received the most assistance. The statement also is made as follows: “we are not aware of a compelling public benefit to reducing financial assistance to individuals living as two parent families with children on the basis of their family status”. Now that is real fairness!

The statement “The same data shows that a two person household with no children has almost twice (184%) the household expenses of a one person household” is inherently false. There are many sources of information showing that it costs singles 60-70 per cent of what it costs a married/coupled family unit to live (moneysense).

For a more accurate comparison of percentage of living expenses incurred by family units, one could use living wage analysis and equivalence scales.

Two Living Wage studies for Canadian cities are Guelph and Wellington and Grande Prairie (table at end of post) show living expenses (not middle class living, but bare bones living to prevent homelessness). In both of these studies, it should be noted that singles are not allowed the purchase or use of a vehicle. Instead, they have to rely on transit and taxis.

The Guelph and Wellington 2013 study (livingwagecanada-FINAL) showed living expenses for singles at $25,380, lone parent with one child $40,704, and two parent family with two children $56,796. The Grande Prairie 2012 study (GP.pdf) showed living expenses for singles $19,284, lone parent with one child $41,844 and two parents with two children $62,844. Calculation of Guelph and Wellington percentages for single in comparison to lone parent with a child is 62 per cent and in comparison to two parents with two children 45 per cent. Grande Prairie percentages of single in comparison to lone parent with one child is 46 per cent and to two parents with two children 30 per cent.

(It should be noted that one of the significant differences for Grande Prairie percentages of singles to other family units is shelter where single is allowed to share a two bedroom apartment. If $859 rent is for allowed for not shared one bedroom Grande Prairie apartment to equal one bedroom apartment in Guelph/Wellington study, then the total annual expenditure becomes $29,592 or 70% of lone parent with one child and 47 per cent of two parent with two children. The percentages for singles then become more closely aligned between the two studies).

It is very difficult to find Canadian living wage statistics on married/coupled persons with no children as they are never included in these studies. If a few statistics from the USA living wage studies are used (New York 2016 (counties) example single adult $21, 382 and two adults with no children $34,582; Salem, Oregon (Salem-OR) single adult $28,140 and married couple with no children $37,536) then percentage of singles to married or coupled and no children households is calculated as 62 per cent and 75 per cent respectively.

To summarize, the Living Wage studies for Canada and USA show that percentages of singles cost of living to lone one parent one child or two person no children households ranges from 62 to 75 per cent.

The table at the end of this post using Statistics Canada data shows that singles and lone parent families are not doing very well with respect to incomes. Present median incomes are equivalent to living wage incomes (bare minimum to prevent homelessness). Likewise, median net worth shows these same households are at the bottom of the scale in comparison to households with two adults.

Equivalence scales have also been used to provide comparisons of costs of living between different family units (households). The OECD (Organization for Economic Cooperation and Development) modified equivalence scale and square root equivalence scales are two examples. The basis for equivalence scales are described as follows: The needs of a household grow with each additional member but – due to economies of scale in consumption– not in a proportional way. Needs for housing space, electricity, etc. will not be three times as high for a household with three members than for a single person. With the help of equivalence scales each household type in the population is assigned a value in proportion to its needs. The factors commonly taken into account to assign these values are the size of the household and the age of its members (whether they are adults or children).

Table for two equivalence scales:

Statistics Canada 75F0002M – Section 2 ‘The LIM and proposed Modifications’ (75f0002m) provides an excellent overview of what is happening in Canada. This paper proposes modifications to the existing LIM (Low Income Measure) methodology.

“The first is to replace economic family by household as the basic accounting unit in which individuals pool income and enjoy economies of scale in consumption. Secondly and equally if not more important, household is the international standard in comparative statistical surveys of income and well-being while the economic family concept is rarely employed by other countries. Under the proposed modification, an individual will be defined as in low-income if the household as a whole is in low-income which in turn will generate different low-income statistics. Adopting the square root equivalence scale – the square root has declining factors for each subsequent member while the LIM scale does not, and thus flattens out after the third member.. Furthermore, under the Square Root scale one needs only consider how many people are in the family whereas using the LIM scale one needs to keep in mind both the age of family members as well as whether the family is a single parent family”.

(It should be noted that there is no perfect system, however, equivalence scales system is one method that provides a decent measure of financial fairness with respect to cost of living assessments for all members of family units regardless of marital status).

Finally, in regards to the letter and human rights discrimination in relation to singles finances, singles are discriminated against every single day. This has been described in a past post. Re Allowance Program and Credits benefits, 2009 Policy Brief, “A Stronger Foundation-Pension Reform and Old Age Security” by Canadian Centre for Policy Alternatives, page 4 (policyalternatives.ca), states:

“This program discriminates on basis of marital status as confirmed by case brought under the Charter of Rights where federal court agreed program was discriminatory and ruled it would be too expensive to extend program on basis of income regardless of marital status”.

As well, the Progressive Conservative Party has been very diligent in implementing boutique tax credits which have consistently benefited families more. One major example of this is pension splitting in which senior married/couple household benefit, but singles get nothing. How is this not financially discriminatory?

CONCLUSION

Politicians need to become more financially intelligent about what it costs singles to live in this country and the financial formulas the country is using, for example, equivalence scales.
Financial formulas need to include singles equally to family households. Singles need to be Included in the financial family.
All household types including singles need to be included in financial disaster recovery programs with equal dignity and respect. Singles, after all, also donated to the Red Cross program. A solution to distribute disaster monies equally could be to use household and equivalence scales formulas.
Politicians, government, families and organizations like the Red Cross need to educate themselves on what financial discrimination is and to include singles equally in financial formulas.
What is not needed is more ‘organizations’ and aid programs focused on the needs of mothers, seniors, and other demographics (single adults)’. (Habitat for Humanity does not include ever singles in their building program). These are only band aid solutions to what is the real problem, financial inequity of financial formulas. What is needed is for financial formulas to treat all households fairly and equally by using equivalence scales.
How about another novel idea – treat benefits (benevolent programs) equally to expenditure programs (boutique tax credits) using equivalence scales. The Alaska Permanent Funds Dividends and Ralph buck programs (money-benefit-programs) grossly discriminated against singles by giving monies to children who have not contributed one cent to the economy. Singles paid taxes for these dollars that are distributed to children who have paid nothing.
Regarding financial human rights and discrimination, the government has to yet provide an answer as to why the Allowance Program and Credit benefits is being continued through to at least 2029 even though the courts ruled it to be discriminatory.

This blog is of a general nature about financial discrimination of individuals/singles. It is not intended to provide personal or financial advice.

RETIREMENT INCOME SECURITY FINANCIALLY DISCRIMINATORY FOR EVER SINGLES AND EARLY DIVORCED/SEPARATED PERSONS

Posted on June 2, 2016 by ffswpadmin

RETIREMENT INCOME SECURITY FINANCIALLY DISCRIMINATORY FOR EVER SINGLES AND EARLY DIVORCED/SEPARATED PERSONS

(These thoughts are purely the blunt, no nonsense personal opinions of the author and are not intended to provide personal or financial advice).

This blog post was updated on December 1, 2017 replacing 70% information with 1.4 equivalence scale for couples to that of singles, not 2.0.

So here we go again, several organizations, primarily Chambers of Commerce and financial planning and insurance associations, have taken out a full page in newspapers across the country for an article called “It’s time for national cooperation on retirement income security” and is addressed to Federal, Provincial and Territorial Finance Ministers (clhia). In this article, widowed elderly are highlighted over single elderly seniors in regards to living below the poverty level.

The article talks about being proud of Canada’s retirement system. It then goes on to say: ‘That said, there are pockets of our population who are not as well-prepared for retirement as they could be. These shortfalls are specific to certain segments of our populations. Hence, any ‘one-size-fits all’ approach could prove harmful to the economy as a whole and be unnecessary for many.We believe that the time has come to take a targeted approach to addressing any shortfalls. Such an approach should be national in scope.. It should be fair, so that it doesn’t introduce inter-generational transfers or require over-saving where it is not needed. It should be cost efficient and easy to implement. It should minimize administrative burdens for employers. And it should be good for the economy.

There are three specific segments not on track to maintain their standard of living in retirement:

A small percentage of lower-income Canadians live below the poverty level, particularly the widowed elderly. The commitment in the federal budget to increase Guaranteed Income Supplement (GIS) payments will provide some assistance in easing this situation But more could and should be done, such as eliminating the claw-back for a surviving spouse under the Canada/Quebec Pension Plan.

Up to 25% of modest-income Canadians (say above $27,500) are not on track, largely because they do not save outside of the public system and/or do not have workplace plans. This group could benefit most from a modest increase in C/QPP contributions that would help meet their needs.

Up to a third of higher-income Canadians are not on track to maintain their standard of living in retirement because they do not have a workplace plan or don’t maximize their participation in one, or they do not have sufficient private savings. This group as well as all Canadians should have access to a retirement plan at the workplace, where it is easiest to save.

The undersigned urge all government to pursue a national, multi-faceted approach to improve retirement income security for all Canadians’.

The article is then signed by fifteen different organizations.

Statistics show that in 2014 there approximately 6 million seniors age 65 and over. From BMO “Retirement for One-By Chance or By Design” (bmo) in 2008, approximately 57 percent of seniors were married; of the remaining 43 per cent of single status, 30 per cent were widowed and 13 per cent were divorced/separated or never married (ever singles).

BMO goes on to say that one of the realities for ever singles is that they lack survivor benefits. The following table shows that ever singles and widowed persons, both with employer pensions will still probably have the same income. For widowers with a spouse who also had an employer pension, the widower will have a higher income level from spousal employer pension survivor benefit.

Persons who become widowed are now ‘single’ so why should they receive special privileges like no income claw back for surviving spouses? What do ever singles and early divorced/separated persons get that is comparable? Studies repeatedly show that according to equivalence scales (equivalence-scales) it costs a married/coupled person family unit without kids 1.4 times that of a single person household, not double..

This blog has published several posts where it has been shown that financial advisors have no clue about the financial affairs of ever singles and early in life divorced/separated persons. One wonders what financial experience Chambers of Commerce have that they can comment on the financial affairs of singles.

Once again, the widowed elderly have been highlighted as an area of concern while ever singles and early divorced/separated persons are left out of the financial discussion.

There is complete financial illiteracy by most people on what it truly costs to live as a single person. The post ‘Real Financial Lives of Singles’ (singles) gives five case studies, four of which contribute to employer pension plans, and one widowed person who has considerable wealth and is concerned that he can no longer pension split and may have his OAS clawed back. Even with an employer pension plan it is not easy for singles to have a decent financial life. Another post ‘Continued Financial Illiteracy of Financial Gurus Equals Financial Discrimination of Senior Singles’ (senior-singles) shows the financial silos that have been created by governments where married/coupled persons as one family unit and some widowed persons as one family unit receive more financial benefits than ever singles and early divorced/separated persons family units.

To ensure financial equality between singles, widowers and married/coupled persons, the following measures need to be taken:

change financial formulas so that senior couples receive 1.4 equivalence scale only of whatever is given to a single senior person household as it costs more for single senior person household to live than it does married/coupled family units because of economies of scale
financial formulas should be revised to include all senior persons regardless of marital status in one financial formula. To eliminate financial silos that benefit married/coupled persons most, delete benefits already given to married/coupled persons such as pension splitting (benefits the rich most) so that there is a level financial playing field for all regardless of marital status. (It is understood that it is expensive to raise children and benefits given for children should last for first twenty years of the life of the child. However, beyond the twenty years of the children, any other benefits given to married/coupled persons should be deleted or revised to a rate of 1.4 to that of a single person)
create a side-by-side list of all possible benefits under categories of married/coupled, widowed and single and analyze what each category gets in benefits. Financial formulas should be created equally for all categories, not just the married/coupled and widowed.
delete allowance benefit that has been ruled to be discriminatory by the courts
education, education and more education on financial literacy for singles. Think tanks, financial gurus and married/coupled people need to educate themselves on what it really costs singles to live.
financial benefits should be income-tested for all family unit types. Income testing should include housing and savings. It is likely to cost ever singles more to live as they are more likely to rent while widowers are more likely to own their own homes.
all financial formulas for singles should include ever singles, early divorced/separated persons and widowers on an equal basis.

This blog is of a general nature about financial discrimination of individuals/singles. It is not intended to provide personal or financial advice.